Capital Markets: Observations & Insights

Addressing Interest Rate Risks—It’s Too Soon to Worry Valuation

• Potential Risk : higher bond yields  lower equity valuations? • Potential Solution : favor equities over bonds given that increasing interest rates have supported higher P/E multiples at low absolute levels

S&P 500 NTM P/E vs. 10-Yr Treasury Note Yield 1964-2017

25

Higher Rates Rising P/E

Higher Rates Falling P/E

= Month

20

15

P/E

10

5

-

5

10

15

10-Year Yield

Source: RBC Capital Markets and FactSet. Data is through September, 2017.

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