Are Equity Valuations Out Of Line With Reality?

As stock prices fall today, with the Dow Jones Industrial Average (INDEXDJX:.DJI) ending a scorching 326 points lower ahead of earnings, are core valuations moving past a realistic point?  Has quantitative easing lifted stocks, and now that the spigot is beginning to tighten, are investors beginning to consider more traditional measures of valuation, such as earnings?

Earnings growth in focus

In his February 3 Equity Strategy note, Citigroup researcher Tobias Levkovich opines that 2014 could be a year in which the market is all about earnings growth.  “With valuation only moderately attractive, it seems that the heavy lifting for equity appreciation will have to come from rising profits, especially since some of the originally anticipated 2014 P/E ratio expansion got pulled forward...