Investors seek more risk in equities as bond yields get low... And
higher equity valuations make bond investors believe it's just as safe as it was before when both debt and equity valuations were lower (and objectively less risky).
Furthermore, he notes that while earnings are decent, there is the hard truth that returns over the last few years have come as much
from higher equity valuations as they have from fundamental growth.
Robust consumer spending is typically a friendly factor for the equity market, and may provide a reason to maintain equity exposure, in my view,
despite high equity valuations seen over the past year and the lack of any significant market correction.
Lower rates do not always and everywhere
imply higher equity valuations — see Japan over the past 25 years — two bear markets of 60 % each in a ZIRP environment.
In the US, rates were much lower in 2002 - 03 than in 1999 - 2000, but we certainly didn't have
higher equity valuations in 2003 than in 2000.
Activists may be partly to blame, but mostly it's due to very low interest rates and
very high equity valuations, which are two sides of the same coin.
To the extent that lower Treasury yields are even weakly associated
with higher equity valuations, recognize that this effect is also expressed over time as lower subsequent stock market returns.
In addition to limited investment alternatives, low interest rates and
high equity valuations make contributing to a 529 plan today unappealing to me.
In an exclusive interview, value fund manager Stephen Yacktman discusses the impact of
high equity valuations on the actions of value - oriented investors.
At
these high equity valuations, that could really scare investors.»
The primary factors that contribute to this perspective are
higher equity valuations, low global growth, and rising interest rates that will be a headwind for bond portfolios.
Already, investors are paying closer attention to
high equity valuations.
In this age of ultra-low interest rates and sky -
high equity valuations, cheapness is nearly a forgotten concept.