Is the market rally due for a 'water break'?
One constant of the current stock market rally has been margin expansion—the ability of prices to keep climbing higher relative to earnings.
And while that was fine as stock values remained cheap compared with historical norms and as profits continued to rise, the environment ahead may not be as amenable.
That's why experts are now warning investors that the market may have to climb the old-fashioned way—through stronger sales and a stronger economy—as the growth of price-to-earnings ratios cools.
"Yes, bull markets tend to have a life of their own," said Brian G. Belski, chief investment strategist at BMO Capital Markets. "However, the secular bull is going to have a hard time achieving the five-mile marker at its current 40-yard sprint pace. Fundamentals dictate a water break, and the market needs to take a sip."
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What Belski and others believe must now happen is for the market to rise higher on fundamentals apart from sharp cost-cutting and the low-interest-rate and low-inflation-environment resulting from the Federal Reserve's historically easy-money policy.
The low rates also have helped fuel company borrowing that has been used to repurchase more than $1 trillion in stock during the four-year surge.
Margins are getting increasingly stretched, though, and Belski argues that companies will have to start putting cash to work and expand their businesses to get further appreciation.
The market also will require more than the current tepid pace of economic growth.
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"Whether or not the market is correctly anticipating stronger economic growth remains to be seen," Belski said in a note. "Nonetheless, stronger economic growth is exactly what we believe will be required to keep EPS and market momentum intact."
Belski has a 1,650 full-year target on the S&P 500, which is lower than the current level but one he said represents a more realistic pricing of the market.
For 2013, the index has rallied more than 18 percent, well ahead of earnings. In fact, second-quarter earnings would have been flat had it not been for a gigantic leap in financials.
The stock index's price-to-earnings ratio is a gaudy 18.4 percent over the last 12 months, according to Capital IQ.
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Looked at more realistically, the S&P 500's gains this year should be more like 11 percent, said David Rosenberg, chief economist and strategist at Gluskin Sheff.
"At least in the U.S.A, profit margins and P/E multiples likely need a fresh catalyst for further expansion," Rosenberg said. "To be polite, this is a market that is fully priced and then some."
—By CNBC's Jeff Cox. Follow him on Twitter