“Equities are detached!” laments are admittedly tired, usually clichéd and rarely useful.

The problem with suggesting stocks are “disconnected” from various fundamentals and traditional drivers is that equity benchmarks, and particularly cap-weighted benchmarks, are in part just barometers of greed and despair. There’s no reason to assume that stocks will necessarily trade consistent with fundamentals over the near- or even medium-term.

That said, it’s notable that recent gains for US shares have come despite stubbornly elevated real yields. Typically, re-ratings are associated with falling real yields, and vice versa. Rising reals are kryptonite for equities, and especially for growth stocks and various manifestations of “froth,” “hype” and so on.

10-year US reals began 2023 at 1.53%. They’re 1.57% now. But the Nasdaq 100 is ~40% higher.

As you can see from the visual, that makes for a rather stark juxtaposition. Some might call it uncomfortable.

“Valuations of equities have increasingly de-coupled from real rates,” Goldman’s Peter Oppenheimer and Sharon Bell remarked, noting that multiples have “increased sharply in recent weeks despite a rise in real bond yields.”

The figure below is even more poignant, although it’ll be familiar to all serious market participants.

You could argue that situation is untenable. “Multiples [are] extended versus real rates,” Morgan Stanley’s Mike Wilson reiterated this week.

If you want to rationalize it, you have two options. “This implies that either investors expect rapid rate cuts, or that long-term growth expectations have gone up,” Goldman’s Oppenheimer and Bell wrote.

The latter explanation is plausible. The former not so much. And I don’t think they can happily coexist in “combination,” as Goldman put it.