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The big ( valuation ) surprise

Sep 22, 2023

As we learned at business school, valuations and interest rates are joined at the hip. The higher interest rates are, the higher the discount rate is and the lower valuation multiples investors should pay for a future earnings. With the US risk free rate as measured by the 1 month US T-bill up from 0% in 2021 to 5.25% today, it is time to check the valuations in the equity markets. Big surprise: the longest duration stocks ( growth stocks ) are the most expensive in 20 years in terms of forward P/E and the cheapest equity markets remain in the UK, Europe and Emerging markets. Time for a reality check.

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