Do not be scared by these maximum levels!

The alternative of a riskless investment is less and less appealing and prices in the stock exchanges are higher and higher because of the existence in the West of a low (and not necessarily minimum) interest scenario that will be extended over time within a context of moderate growth, contained prices and high indebtedness.

The reason is the lack of real return in that alternative. For those who love the price-earnings ratio (PER), let’s remember that S&P 500’s current PER is 16 times, which is on a par with the historical average of the last 35 years (also 16 times).

However, such measure results from the combination of a 12.5 times PER in the years between 1978 and 1995 (9% yield on average), and 22 times between 1996 and 2013 (4.3% yield on average). Currently, the 10-year bond yield does not meet 3% and (even though it will eventually increase) we don’t expect it exceeding 4%.

Do not be scared by maximum levels!

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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