According to Russ Koesterich, Head of Asset Allocation for BlackRock’s Global Allocation Fund, “the bull market has stumbled, but that doesn’t mean we are headed towards a bear market.”

Indeed stocks suffered a horrific sell-off last Friday following the surprise vote by the UK to exit the European Union. But even before the Brexit vote, stocks had been losing steam. U.S. large cap stocks have now gone well over a year without making a new high. The S&P 500 is trading right where it was in the fall of 2014. Small cap stocks have performed even worse. The Russell 2000 bounced sharply off of the February lows, but small caps remain roughly 10% below their 2015 peak.

What happened to the bull market? Koesterich believes that three trends help answer that question, which he explains in his company’s blog:

Stocks got expensive
U.S. stocks are not in a bubble — valuations remain significantly below the peak in 2000 — but that is not the same as being cheap, or even fairly priced. At over 19x trailing earnings stocks are trading in the top quartile of their historical valuation range. True, stocks still look cheap relative to bonds, but it is worth considering why. Bond yields are low because nominal growth is remarkably weak, not a great environment for corporate earnings. In addition, central banks have increasingly treated bond markets as yet another manifestation of monetary policy. Bond yields have been driven lower not just by the Federal Reserve’s (Fed’s) quantitative easing (QE), but more recently by the behavior of other central banks. As the European Central Bank and the Bank of Japan have driven yields into negative territory, U.S. bonds have become more attractive to foreign buyers, pushing yields still lower. Stocks are cheap relative to bonds because bond yields reflect little growth and aggressive central banks.

Financial conditions have become less benign
Interest rates, both nominal and real (i.e. after inflation), are incredibly low, but other measures of financial conditions are less benign. While the dollar is trading roughly where it was a year ago, it is up more than 20% from its 2014 lows. A stronger dollar is a de facto monetary tightening and a headwind for corporate earnings. Other measures also indicate tighter financial conditions. Credit spreads have narrowed from their recent peak, but high yield spreads are roughly 200 basis points wider than they were two years ago. Finally, liquidity has become harder to find, as demonstrated by the recent freeze in IPOs.

The tailwinds abated
Much of the stock market gains in 2012 and 2013 were driven by multiple expansion on the back of aggressive monetary stimulus. Between the market low in 2011 and the end of 2014 the price-to-earnings ratio on the S&P 500 expanded by over 40%. Put differently, as central banks, including the Fed, embarked on an increasingly aggressive series of monetary experiments investors responded by consistently paying more for a dollar of earnings. However, since 2014, QE has ended and monetary stimulus by other central banks, notably the Bank of Japan and European Central Bank, is proving less effective in stimulating asset prices, outside of European credit.

Where does this leave investors? “The good news is that none of these conditions signal an imminent bear market. Valuations are high, but have typically been higher at market peaks. The dollar has stabilized, which should take some pressure off of corporate earnings. Unfortunately, with central bank policy increasingly impotent and valuations elevated and political risk on the rise investors need to recalibrate their expectations. Consistent years of double digit returns can be viewed as borrowing returns from the future. It appears that future is now, suggesting lower returns today.” He concludes.