It is no secret that earnings have gone nowhere over the past two years (and are set to decline for 6 consecutive quarters), while on a GAAP basis earnings as of 2015 were the lowest since 2010...

... which means that earnings growth has not been a factor behind the stock market's recent ascent to all time highs. As a result, the conventional explanation to justify the S&P trading just shy of 2,200 is that the market has been the beneficiary of unprecedented multiple expansion. To be sure, as Goldman recently opined, the median stock multiple has never been more overvalue.

Indeed, if one left it at that, the answer would not be exactly wrong, however there is one more factor which is rarely discussed, and which - according to Deutsche Bank - explains virtually the entire equity rally of the past four years: the collapse of the equity risk premium as a result of plunging bond yields, which as a reminder, is the direct pathway by which central banks operate, by monetizing government, and now corporate, debt.

As Deutsche Bank's Dominic Konstam writes over the weekend, "various Fed officials have raised the issue of financial stability in the context of the reach for yield and riskier products to make up for low rates. This is part of financial repression. The logic might be that once the Fed has normalized, elements of that reach for yield and risk would be unwound and this could lead to disruptive financial market volatility."

Put in the simplest possible word, this means the Fed is worried that once rates go up as a result of renormalization and the lack of a central bank to frontrun, stocks will crash. As it turns out the Fed has ample reason to be worried. As Konstam explains, here's the reason why:

We can illustrate this aspect of financial repression in terms of the equity market. In the post crisis world, all assets seem closely correlated to breakevens and real rates but with varying betas. We note that the equity market recently looks very expensive even to these rates through the shift in the beta on inflation expectations – so despite low inflation expectations, equities have done even better than otherwise warranted by low real rates. This shows up as a fall in the equity risk premium and defines well the hunt for yield in a repressive financial regime.

How does the decompsition of performance look visually: we can illustrate the extent to which this is unprecedented with the historical performance of the equity market. Decomposing equity returns into earnings growth, changes in P/E and changes in the risk premium shows that the bulk of equity performance is best captured by the shunt lower in equity risk premium.

In turn, this means that every push higher in yield, whether orchestrated by central banks, or due to exogenous events like a "taper tantrum" risks upsetting this precariously compressed ERP "spring", leading to a violent market crash. Because if the ERP is responsible for 92% of the S&P500 move since 2012, or just over 800 points, that would suggest that central bank policies are directly responsible for approximately 40% of the "value" in the market, and any moves to undo this support could result in crash that wipes out said ERP contribution, leaving the S&P500 somewhere in the vicinity of 1,400.

In retrospect, it becomes obvious why the Federal Reserve is petrified about even the smallest, 25bps rate hike.