Wellington Management
June 29, 2020
Tracing our history to 1928, Wellington Management is one of the largest independent investment management firms in the world. We serve as a trusted adviser for institutions in more than 60 countries.

Do low yields justify high stock prices? No. Yes. It depends.

MANY INVESTORS ASSERT THAT LOW BOND YIELDS RESULT IN HIGHER STOCK PRICES. In isolation, this clearly makes sense: as the discount rate falls in the denominator, the net present value of the stock increases. However, we also need to consider other dimensions, such as credit risk, and how these also play a role in setting price-to-earnings (P/E) ratios.

Here, I explore the underlying data at the index level (the MSCI USA Index, 1975 to present) to weigh the three possible answers to this question: no, yes and it depends.

Read the full article here.

Views expressed are those of the author and are subject to change. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional or institutional investors only.

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