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Why are interest rates so low and are stocks overpriced?

Interest rates are at long term historical lows and stock pricing is historically high, based on various metrics. Why and what is likely to happen?



Asset prices and “yields” go in opposite directions

It is important to start with the basics: asset prices and “interest rates” go in opposite directions, or more precisely, asset prices and “expected yields” go in opposite directions. Indeed, if you pay the very same asset 100$ instead of 200$, it is a better “deal” at 100$: you pay less for the same future expected value. Hence, when asset prices go UP, expected yields go down on those same assets. That is, buying into stocks are sky-high prices is not the best!


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Pascal Bédard

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