Metrics Showing Markets Are Approaching Dangerous Threshold

March 29, 2015 • Free • Tags: , ,

Markets had another rough outing, with the S&P500 down 2.3% this past week. For 2015, the S&P500 is roughly flat, up 0.1%. Valuation concerns have arisen as the Office of Financial Research, the agency in charge of analyzing the markets’ valuation, released a report last week stating equity markets are overpriced relative to historical figures. We’ve been wary of these trends and have adjusted our research accordingly, focusing on companies that will be able to perform regardless of what happens to general markets.

Impact of Historical Low Rates

According to the commonly used discounted cash flow model, intrinsic value of a stock is the present value of its future cash flows. A lower discount rate, directly linked to US Treasury rates, will result in higher present value...

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