Even so, earnings growth is a side-show next to the big determinant of a share’s worth: the discount rate. On a simplistic dividend growth model for the S&P 500 index, a reduction in the long-term growth rate from 6 to 5 per cent drops fair value by a third, other things being equal. But lowering the discount rate from 8 to 7 per cent, say, is enough to make the fair value of the S&P 500 roughly double today’s level.

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