The tailwinds of change: Three-minute macro [Manulife Investment Management]
Inflation is showing signs of moderating, and if history is any indication, that could be a tailwind for equities. We’ve also got eyes on the timeline for a reopening in China, and on Americans’ excess savings, which aren’t excess for everyone.
Cooling CPI a tailwind for P/E multiplesWe plotted the price-to-earnings (P/E) ratio of the S&P 500 Index against monthly inflation figures (as measured by year-over-year changes in the U.S. CPI) from 1965 to 1999, and our work suggests a negative relationship between the two: as inflation declines, P/E ratios have typically expanded (and vice versa).1
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A rise in interest rates typically causes bond prices to fall. The longer the average maturity of the bonds held by a fund, the more sensitive a fund is likely to be to interest-rate changes. The yield earned by a fund will vary with changes in interest rates.
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