Although the media continue to closely monitor developments of the covid-19 pandemic, financial markets have found another source of concern: interest rates. Indeed, investors have long been accustomed to low interest rates by central banks. In 2021, the bond markets experienced strong shocks that financiers were no longer used to. Since January 1, ten-year rates have climbed 0.63% in the United States, 0.80% in Canada and 0.53% in the United Kingdom. Even in Switzerland, Confederation rates jumped 0.30%.
The consequences have been quite different depending on the nature of the asset.
We remember that 2018 was a bad stock market year. The trade wars announced by the United States and the Fed's rate hikes had depressed financial markets. In 2019, a sense of optimism returned to investors following trade negotiations between the Trump administration and the Chinese. Agreements with other countries such as Mexico and Canada reassured the financial markets. The stock market upturn was also driven by the Fed's rate cuts in the United States.
The year 2020 thus promised to be auspicious, especially since in the United States, the unemployment rate was reaching historic lows. But it was without counting on the covid-19 which upset the world.
Investors often distinguish between high growth companies ("growth stocks") and defensive companies ("value shares"). The purpose of this distinction is to take into account the expected future growth in the frame of the valuation of the share price. Indeed, this is the only realistic way to compare a growing company with a company whose business…
Intuitively, changes in company shares should follow changes in company profits. The more a company grows its profits, the greater the creation of shareholder value should be.
However, interest rates and injections of liquidity by central banks have distorted this relationship between earnings and stock price development.
Here are some examples of well-known values.
Since the late 1970s and early 1980s, many developed countries have not experienced inflation. To the contrary, inflation rates have kept falling, dragging interest rates lower. Forty years of disinflation This phenomenon of "disinflation" can be explained by three factors. The first factor is the demographic trend marked by a drop in the number of…
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