Topic of the week: Stocks are too expensive? Really?
- It is undisputable that stock market valuations are very stretched when compared to historical standards. Some metrics are even at an all-time high.
- But taking into account the level of risk-free rates, valuations appear justifiable or even reasonable. In particular the low level of yields has a mechanical impact on the discount factor, with the consequence of lifting multiples.
- Finally, we find that elevated valuations are a signal of market correction only if profits are unusually high as well. This is not currently the case.
Market review: Powell waiting for a sign from Congress
- Fed keeps status quo, may adjust QE to incoming data
- US curve steepening continues with 5s30s above 130bp
- Equities buoyed by continued monetary accommodation
- to fully absorb net German bond issuance in 2021