Over the course of the 18.25-year bull market, more than half of the market’s capital appreciation was driven by inflation and the decline in interest rates, and another 20% by multiple expansion, leaving only about 20% of the appreciation attributable to real earnings growth. Between March 31, 2000 and March 31, 2002, inflation continued to be a positive contributor and interest rates were a negative contributor. The contributions of earnings and multiple expansion is far less clear as the answer depends on whether you look at reported earnings or operating earnings. Looking forward, the main question is how falling interest rates and rising inflation, valuation multiples, and earnings growth might be expected to affect future returns.  The basis of our relatively pessimistic view of the U.S. equity market is that: interest rates seem more likely to rise than decline, unless the economy falls back into deeper recession; inflation expectations are already low, with room for disappointment; and historically high P/E multiples seem more likely to contract than expand in the coming years.