A Macroeconomic Perspective on Stock Market Valuation Ratios

Andy Atkeson, Jonathan Heathcote and Fabrizio Perri

No 21061, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Traditional valuation metrics for the U.S. stock market based on a comparison of the aggregate market value of U.S. corporations to measures of dividends, earnings, output, and the replacement cost of measured capital have been above historical norms for the past 25–30 years. Will they return to their historical means? We use macroeconomic data to argue that the observed decline in labor’s share of corporate output in conjunction with relatively weak corporate investment mechanically generates a persistent rise in the ratio of corporate valuation relative to corporate earnings, even absent any changes in expected returns or growth rates.

Date: 2026-01
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