Five structural pressures on equity valuations
A thesis attributed to Savita Subramanian of Bank of America argues that five distinct structural factors will force stock multiples cheaper this year.
The argument
The five factors discussed are: disruption math (where price declines precede earnings downgrades), a looming glut of mega private IPOs sucking up market liquidity, historical data showing above-average earnings years typically see 10% PE compression, worsening asset intensity and leverage in tech, and index selling pressure from private equity funds needing to raise capital.
The thesis, stress-tested
✓ What validates it
- ✓Mega IPOs like OpenAI, Anthropic, or SpaceX filing to go public and absorbing market liquidity
- ✓A measurable rise in the VIX index accompanied by selling pressure in liquid equity index funds
▸ Risks discussed
- ▸Public markets may have zero appetite for cash-burning AI IPOs
- ▸The VIX index rising significantly in response to private market hiccups
Hear it yourself
"Reason three, really strong earnings per share means really compressed multiples. Above average earnings saw a PE multiple compression 66% of the time since the year 1900. 14% earnings per share growth growth years, that's their forecast for this year, have seen an average of 10% PE compression."
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