Beware Higher Discount Rates

| Multi Asset

Higher interest rates could drag on valuations in spite of the expected recovery in sales and earnings. For example, the underwhelming year-to-date return of the Nasdaq 100 may seem challenged by its expected earnings growth of 35% compared to last quarter, but rising yields have been a heavy burden for the index to bear. A standard Gordon-Shapiro model would suggest that the 70bps rise in the US 10-year yield this year, combined with earnings growth of 35%, would net an expected return of about 4%, all else being equal, given the high duration of these stocks.


Beware Higher Discount Rates

Source: Bloomberg, Unigestion. Data as at 9 April 2021.

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