Multiple compression
MarketsDefinition
Falling P/E (or other valuation multiple) without falling earnings. Drives stock prices down even when fundamentals hold up. Caused by rising rates, falling sentiment, or revised growth expectations.
The 2022 sell-off was almost entirely multiple compression — S&P 500 EPS held up, but P/E fell from ~22 to ~17. Multiple expansion is the opposite phenomenon (rising multiples in stable earnings) and accounts for much of the 2010-2021 bull market.
The 2022 sell-off was almost entirely multiple compression — S&P 500 EPS held up, but P/E fell from ~22 to ~17. Multiple expansion is the opposite phenomenon (rising multiples in stable earnings) and accounts for much of the 2010-2021 bull market.