Capital Markets: Observations & Insights

Addressing Rising Rate Concerns ​ Valuation

• 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%

Interest rates can rise without impact on stock valuations

14%

12%

10%

8%

6%

Nearly 300 bps

4%

2%

0%

1958

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

2010

2014

2018

Source: FactSet, Federal Reserve, and S&P, as of 9/30/18.

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