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Expand chart
Data: FactSet; Chart: Axios Visuals

The stock market’s recent trend could be described as just going higher — with the S&P 500 setting its intraday record high of 4,257 on Tuesday. Despite bubble concerns and pockets of investing mania, fundamentals are supporting it.

Why it matters: The stock market has rallied almost unabated in the past year, more than recovering all of its early pandemic losses, leading some to question if prices have detached from economic reality and gotten frothy.

Be smart: No discussion on stock prices is complete without addressing earnings, specifically expectations for earnings growth. After all, the theoretical value of a company is the present value of all of its future earnings.

What they’re saying: "The rally in stocks over the past year has been driven entirely by fundamentals," Credit Suisse’s Jonathan Golub wrote in a research note, adding that the trajectory of stock prices and the earnings expectations have been rising almost hand in hand as seen in the chart above.

The other side: Skeptics note that the market’s valuation — as measured by the ratio of price divided by expected earnings — is around 21. This is significantly above its 10-year average of 16, suggesting that stocks may be overvalued.

Yes, but: Many experts ranging from the billionaire investor Warren Buffett to the Fed chair himself Jerome Powell have long argued that historically low interest rates justify elevated valuations like what we're seeing today.

The bottom line: Stocks are inherently risky, so there will always be reasons to be worried about prices falling. But lack of earnings growth is not one of them. And earnings growth is the most important driver of value.

Go deeper

Powell goes on record about Fed trading uproar

Fed chair Jerome Powell testifies at a hearing last year. Photo: Graeme Jennings-Pool/Getty Images

Most of the questions Federal Reserve chair Jerome Powell fielded at Wednesday's press conference related to the coming taper. A runner-up: the trading controversy that’s put a spotlight on some Fed officials, including Powell himself.

Catch up quick: Recent financial disclosures showed two regional Fed officials owned — and in one case, actively traded — assets sensitive to the drastically expanded monetary policy they helped shape.

Mayors feel powerless to reduce homelessness

Expand chart
Recreated from 2021 Menino Survey of Mayors; Chart: Jacque Schrag/Axios

America's mayors know their constituents hold them accountable for homelessness, but many don't feel they have the tools or power to fix things, a brand new survey says.

Why it matters: While homelessness has become more acute during the pandemic, city leaders say they lack the money, staff or political support needed to make a meaningful difference.

Ina Fried, author of Login
1 hour ago - Technology

Microsoft to buy Activision Blizzard

Photo: Jakub Porzycki/NurPhoto via Getty Images

Microsoft announced Tuesday it plans to acquire video game giant Activision Blizzard for $68.7 billion in cash.

Why it matters: The move comes as Activision Blizzard has faced a wave of accusations of workplace harassment.