“I don’t know who you’re talkin’ to, but business is boomin’.”

— Jackie Moon

Brass tacks — which in this case means notwithstanding the day-to-day impact of mechanical flows and modern market structure’s tendency to hijack the tape — equity performance is a function of corporate profits.

When you buy stocks, you’re buying a share of those profits, not poker chips. And while all sorts of factors influence prices over the near- and medium-term, the single most important determinant of long-term performance is starting valuation, which is to say how much you paid for a dollar of profits.

With that in mind, we’re currently witnessing a profit boom of truly historic proportions, and it’s expected to continue, which is pushing forward multiples lower despite new records for the index(es).

“The market’s resilience comes down to one thing: earnings,” SocGen’s Andrew Lapthorne wrote Monday. “Investors may obsess over geopolitics, interest rates and bond yields, but rightly or wrongly, equities tend to follow EPS growth, and MSCI World earnings are growing at their fastest pace outside a post-recession rebound.”

It’s not just the mega-caps. As the figure above shows, ex-Top 10 forward profits are expanding briskly. “Gains are becoming increasingly broad-based,” Lapthorne remarked, adding that the median company’s “seen a 13% rise in forward EPS” over the last several months.

If you’re inclined to suggest this is too good to be true — I can’t emphasize this enough: This profit boom isn’t the product of corporates lapping recession comps; corporate America’s growing the bottom line at a ~25% clip against prior year quarters during which the economy was expanding at a 4% annualized pace! — you’re not alone.

As Lapthorne was keen to point out, the market itself seems to harbor doubts, as illustrated rather poignantly by the figure below.

“In the S&P 500, earnings have risen faster than share prices, driving one of the sharpest de-ratings in the 18-month forward P/E multiple on record,” Lapthorne said.

“Profits are so strong,” he went on, “that the market appears reluctant to believe them.”