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Rising real rates means buy U.S. stocks

Dividends and earnings growth get all the attention, but margin expansion – stock prices rising even though profits remain at same levels – is equally important as a source of equity market returns.

On this front, we have good news. Adam Parker, chief U.S. equity strategist at Morgan Stanley, recently noted that price earnings multiples and stock prices historically rise with inflation-adjusted (real) interest rates. This trend suggests significant upside for U.S. stocks even if profit levels stagnate.