Do Lower Interest Rates Really Justify High Equity Prices?

A debate that has been raging across Wall Street for the past few months is the question of whether or not low bond yields justify higher stock prices. The roots of this argument are to be found in the equity risk premium and the Fed Model, two equity valuation models that rely heavily on bond yields (risk-free rate) to produce a fair value calculation for stocks.

Global bond yields - Why are they Collapsing Now?

Deutsche Bank’s analysts were some of the first to draw attention to the idea that stocks could go much higher if bond yields continue to decline earlier this summer.

At the beginning of July, Deutsche Bank’s Dominic Konstam and team wrote in a research note that...