Part 4/6:
Amid rising yields, investors are grappling with the fundamental reasons behind this trend. Lori articulates that a strong economy, while seemingly a positive factor, can also lead to higher borrowing costs and potential slowdowns in economic growth. This complexity can create mixed signals for the equity market.
She delves into the historical inverse relationship between interest rates and the price-to-earnings (PE) ratios of stocks. Higher interest rates typically lead to lower PE multiples, and given the significant PE expansion seen in recent years, further rate hikes could pressure these multiples.