Equity Valuation: It's All Downhill From Here

While in 'normal' times the commonly held view is that P/E ratios tend to fall as real interest rates rise, as we recently pointed out here, the relationship is highly non-linear and nowhere is this regime-dependence more evident than in the following chart from Morgan Stanley. Empirically, the current interest-rate regime (the 2-3% 10Y) is as good as it gets and whether rates rise or fall from here, equity valuations are likely to drop. The market rarely trades at the average multiple,

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