All of the drivers of the 21st century valuation mannequin are reversing, in response to BofA Securities.

The “S&P500 (SP500) (NYSEARCA:SPY) generated $220 of EPS previous 12 months,” strategist Michael Hartnett within the weekly Move Present notice Friday. Making use of “a 20th century PE of roughly 15x will get you to an S&P500 index of 3300 (our view), making use of a 21st century PE of 20x will get you to an S&P500 of 4400.”

However the drivers of the 20x PE – QE, fiscal austerity, free motion of commerce and folks, individuals and capital and geopolitical peace – are ebbing away, Hartnett mentioned.

The brand new regime of upper inflation implies that the “secular view stays money, commodities, volatility to outperform bonds & shares” and “inflation in issues we do not have sufficient of: vitality, employees, locations to lease, meals, uncooked supplies, good infrastructure, army gear.”

Deflation can be in authorities debt, workplace house, cell phones and streaming content material, he added.

Traders ought to wait till the S&P 3,600/3,700 space to nibble on equities with new highs in yields (TBT) (TLT) (SHY) and new lows in shares (SPY) (QQQ) (IWM) arrive, Hartnett mentioned.

Trying to the broader financial system, Hartnett mentioned that the housing sector is the one a part of the financial system exhibiting “sinister traits.” Nominal progress continues to be being boosted by “inflation, fiscal stimulus, previous period of wealth accumulation, new period of ‘financial cancel tradition’ (financial ache elicits instant public sector bailout).”

Battle is at all times inflationary, he added.

See how every inventory market sector carried out in August.