Government bond yields, after declining for 40 years, might be trending upwards again
The cyclically adjusted price/earnings ratio (which compares share prices with the average of the last 10 years’ profits) on Wall Street is nearly 40, more than double the historic average.
Furthermore, the valuation of tech stocks relies particularly on profits yet to be made, so they are harmed more markedly by a rise in the discount rate.
But the market damage has so far been limited.
The 10-year yield has more than doubled since the 2020 low, but that has only involved a rise of just over a percentage point.
Bears will believe that it will be impossible for the Fed to control inflation without inflicting some serious damage on the economy and the markets.
Philip Coggan FT 5 January 2022
https://www.ft.com/content/5de87cc7-fdbe-4886-98dc-f8756ca28f13
The writer is a financial journalist and author of ‘More: The 10,000-Year Rise of the World Economy’
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