Episode Details

The big story of markets, at least so far in 2021, has been the rise in treasury rates, especially at the long end of the spectrum; the 10-year T.Bond rose from 0.93% on January 1, 2021 to 1.69% on March 23, 2021. While the conventional wisdom is that rising rates imply falling stock prices, both the fundamentals and the data are more complicated. In this session, I argue that rising rates can coexist with rising stock prices, if the rate rise is caused by stronger economic growth, but is more likely to cause stock prices to drop, if inflation is the proximate cause. I also simple a very simple intrinsic value model to illustrate why high growth companies will be affected more negatively by higher rates than mature companies.
Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/IntRateValue.pdf
Blog Post: https://aswathdamodaran.blogspot.com/2021/03/rates-growth-and-value-investment.html
Spreadsheet to see effects of rates on S&P 500: http://www.stern.nyu.edu/~adamodar/pc/blog/S&P500ValueMarch23.xlsx
Spreadsheet to see effects of rates on mature vs high growth companies: http://www.stern.nyu.edu/~adamodar/pc/blog/EqMultCalculator.xlsx

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