QQQ - Valuation Matters: U.S. High Yield And U.S. Equities

2023-05-19 10:20:00 ET

Summary

• Valuations have a strong predictive relationship with future returns of risky assets like equities and high yields. We analyze this relationship for both US equity and US high yield credit, at the index level.
• US equities and US high yield credits are both classified as risky assets and highly correlated to each other.
• So, it is not surprising that the negative correlation between starting (high) valuations and future (low) total returns holds true for both asset classes.

Like other predictive measures such as economic outlooks, inflation expectations and central bank policies, starting valuation plays an important role in forecasting investment returns. In this research, we look at the US high yield credits (US HY) and US equities to find out how starting valuations have historically predicted future returns, where current valuations are, and what they could imply for future returns.

Source: Author

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

For further details see: