Ritholtz Chart: Why 'Wildly Overvalued' Stocks May Keep Rising
There seems to be an increasing concern that stocks have become wildly overvalued, especially in light of rising interest rates.
However, somewhat overvalued U.S. equity prices can continue to rise if price/earning multiples keep expanding.
Further P/E inflation is what BCA (Bank Credit Analyst) is expecting. They point out "a clear link between equity multiples and the yield curve [with] a steeper yield curve indicative of better growth and very easy monetary policy. As such, it often coexists with expanding equity multiples."
If we are entering a rising rate environment, a steeper yield curve is a likely stay. BCA notes that "the long end of the curve will be held high by real economic growth and better profitability, while the short end of the curve will be suppressed by the Fed."
To contact the author on this story:
Barry L Ritholtz at email@example.com
To continue reading this article you must be a Bloomberg Professional Service Subscriber.
If you believe that you may have received this message in error please let us know.