The present market context is this: from a valuation standpoint, virtually every reliable measure of market valuation we observe is now within the highest 1% of historical observations prior to the late-1990’s bubble. “Reliable” in this context refers to valuation measures that are well-correlated with actual subsequent market returns. These measures include price/revenue, price/book, various cyclically-adjusted price/earnings multiples, and market capitalization/GDP, among others. We’ll discuss valuations first, with the caveat that in practice, the most reliable effect of valuations is on long-term returns. The effect of valuations on shorter-horizon returns cannot be separated from other important factors; particularly the quality of market internals and the presence (or absence) of an overvalued, overbought, overbullish syndrome of conditions. Those factors can either mute or amplify the effect of valuations on subsequent market returns, but only for a while.