Interest Rates and Stock Multiples
(Updated 03/13/2018) Job creation remained solid in the small business sector as owners reported a seasonally adjusted average employment change per firm of 0.22 workers, a strong showing and a repeat of last month. A headline on Bloomberg —"Goldman Says Stocks May Plunge 25% If 10-Year Yield Hits 4.5%" —said that: [1] If the 10-year U.S. Treasury yield hits 4.5 percent by year-end, the economy would probably muddle through -- stocks, not so much, according to Goldman Sachs Group Inc. Goldman’s base-case scenario calls for a 10-year yield of 3.25 percent by the end of 2018, though a “stress test” out to 4.5 percent indicates such a move would cause stocks to tumble, economist Daan Struyven wrote in a note Saturday. He also said the economy would probably suffer a sharp slowdown but not a recession. “A rise in rates to 4.5 percent by year-end would cause a 20 percent to 25 percent decline in equity prices,” the note said. Remember that US Treasury traders ar...