As markets shook off recent shocks, investors pushed valuations up so much that equities and bonds seemed to be priced to perfection, leaving little room for error. Small disappointments in, say, earnings could thus lead to massive, outsized corrections in stock prices. Now that markets seem to be getting nervous again, and since macro considerations appear to be quite important, it is timely to think about the main political and economic assumptions underpinning current valuations. What could upset these investor perceptions and lead to abrupt corrections?

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