Macro Commentary on Interest Rates and Market Risk

16 days ago

"Yes, in the short term we have Trump saying that interest rates will go to 2% will likely happen. In the very long term, we already see issues with inflation, things like that, which means interest rates with higher inflation might be higher on the long term. And interest rates work like gravity on financial assets over the long term because if you look at the current earnings, the S&P 500 P ratio 30, the earnings yield is around 3.3%, which is lower than the 10-year US Treasury. However, if there is a shock that would be catastrophic on everything and all the benefits of what we enjoyed the last five, six years with the stock market doubling might revert. Therefore, when I look at interest rates, I see low interest rates as a risk if it ever reverts and higher rates as value because you can have four recessions with rates close to 20%."

The speaker discusses the impact of interest rates on financial assets, highlighting that while short-term expectations may lean towards lower rates (around 2%), the long-term outlook is challenged by inflation. The commentary underscores the risk if the current low-rate environment reverses, potentially leading to catastrophic market impacts, and stresses that higher rates could signal value amidst significant recession risks.

Related Stocks