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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