Unlucky 7’s

The weekly Market Update is posted and includes the following;

Just about everyone knows the ongoing concern that domestic equity valuations are too high (even if you disagree, you know about it). One common justification for “high” valuations that you have no doubt also heard is that low interest rates allow more room for higher valuations because low rates mean fixed income valuations are stretched which alters the equity risk premium. Mark Yusko from Morgan Creek Capital says otherwise. Low interest rates, he says, are a sign of diminished growth expectations which is hard to argue with in the current environment looking back a few years and looking forward. If growth expectations are diminished then so too should corporate earnings growth expectations be diminished and if that is true then low interest rates should mean equity valuations should be lower not higher which, finishing the thought makes today’s relatively high valuations even more problematic.

Please click through to read the entire update.

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