Otherwise, forces apart from inflation and interest rates dominate stock P/Es. Think about the dot-com stock speculation of the late 1990s and the subprime mortgage bubble of the mid-2000s. So don’t rest easy, believing that low interest rates make stocks cheap. Quite the contrary, low yields are probably foretelling economic weakness and possible deflation that will dramatically slash corporate earnings and P/Es.
This article was provided by Bloomberg News.