Capital Markets: Observations & Insights
Addressing Rising Rate Concerns – Valuation Party Without the Punch?
• Concern: will rising interest rates weigh on P/E multiples?
• Our take: P/Es never priced in how low interest rates had become (see gap below) so we believe earnings multiples may not suffer when rates rise
S&P 500 EPS Yield
Treasury Bond Yield
16%
14%
Interest rates can rise without impact on stock valuations
12%
10%
8%
6%
>300 bps
4%
2%
0%
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
Source: FactSet, Federal Reserve, and S&P, as of 3/31/18.
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