Low-Rate Environment Could “Kill” Stock Market

A recent study shows that, when rates are low, investors’ appetite for risk “increases beyond what seems logical,” according to an article in The Wall Street Journal. The article argues that the average yield on the 10-year Treasury of 2.35% fuels this “behavioral quirk,” keeping share valuations high. “The stock market is rich by just about any valuation measure,” it says, “and by some excessively so.” For the study, the researchers created two investing scenarios. The first represented a 5% risk-free rate of return and a 10% expected rate of return from a “risky” investment, such as equities. The other […]

Jason Zweig on Why Interest Rates Matter

When shopping for sale items, it’s customary to look at the price tag and see how much an item has been “marked-down”. You’d rather browse the “30% off” rack than the racks with lower discounts. Why? Because it affects the item’s value. On a much more sophisticated level, stock values and interest rates have a similar relationship. In a recent Wall Street Journal article, Jason Zweig describes how interest rates are an important factor when determining the intrinsic value of investments (the current value of the cash they are likely to generate in the future). Here’s how it works: If […]