There is a very strong correlation between risk free rates and valuations. If the risk free rate tomorrow jumps to 20%, you can be sure stocks are not going to be trading for an average market P/E of 20 (or 5%) yield. You can just buy the government bond and get 20% , why would you buy a stock yielding 5%? On the other hand, if rates are zero, 5% is looking somewhat better. It looks even better if earnings can grow better in a low-inflation environment than a high one. But I think you have a point that within a certain range, it doesn't matter so much. It's the outliers that are dramatic...like now. Less than 1% for a decade is pretty far out. So is 20%. I believe there was a study published that showed that as rates move up modestly to some neutral level, stocks actually do very well, rising quite a bit more along the way. Beyond this critical level, they start to encounter some turbulence. Where this is is hard to say. I think Buffett in a lecture to students a few months ago said it was 4% and that stocks were extremely cheap if rates don't go above that. So while we don't know what rates will do they have a very big effect on whether stocks will turn out to be very cheap today, or very expensive, or perhaps the most likely case, something in the middle. Btw, Ken Fischer (http://www.financialsense.com/art-hill-technicals-ken-fisher-2017-market-outlook
), son of Philip Fischer , made a good observation about market forecasters. For 2017 he said because the consensus is more of the same, it could very well be + or - quite a bit either way.