If you were to draw a straight line between where equity markets started the year and where they ended, it would appear that risk markets had a reasonable year of low-ish returns. This is a truly remarkable outcome given the market capitulation in March and the uncertainty surrounding the future state of the global economy.
The unusual part of the current rally is the magnitude of the earnings growth expectations and the very high market valuation, leading to speculation of an equities bubble. Whilst valuations on an absolute basis have risen above long-term averages, relative valuations (i.e., compared to expected returns on other assets) indicate that equities are closer to fair value – see figure below.
With interest rates likely to remain lower for a lot longer, investors will be willing to pay more for the yields provided by risk assets leading to sustained higher average valuations.