Fed ‘LOLables’: Nomura’s McElligott On When Rising Real Rates Will Become A Problem

Fed ‘LOLables’: Nomura’s McElligott On When Rising Real Rates Will Become A Problem

When it comes to client inquiries, Nomura's Charlie McElligott hears the following more than any other question: "At what point will equities no longer be able to handle higher real rates?" He's not the only one hearing that question, I can promise you that. By now, this is (or should be) a familiar tale to most readers. In an environment characterized by a deflationary supernova (i.e., the pandemic) accompanied by an existential oil price shock, the steady rise in breakevens and accompanying
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4 thoughts on “Fed ‘LOLables’: Nomura’s McElligott On When Rising Real Rates Will Become A Problem

  1. If higher rates are accompanied with higher expected growth, it is neutral for valuations. Both r and g increase, so denominator r – g is unchanged.

    If a stock already has very high expected growth, so high that expectations can’t really go higher, that’s a problem. ZM etc.

  2. counter-cyclical, pro-growth fiscal stimulus? makes it sound like everything is OK and now were ready to press the economy a bit and hope it doesnt “overheat”. laughable idea when you look at aggregate spending and income the past few months….view it through the lens of 25% refuse to vaccinate and and a lower than necessary mask compliance and the usual “hope for growth in th 2H”. the massive fiscal stimulus is more like trying to fill the bathtubwhle the drain plug is missing. get the u6 rate under 9% alongside this level of stimulus and we’ll talk inflation, imho

  3. sympathize with jyl above. higher real rates with higher breakevens not a concern, higher real rates with falling breakevens (the real driver/story in late 2018) would be problematic. not sure why Muir using 2y TIPS, pretty technical market…5y5y or 10y breakevens more relevant i think.

    if i could post a chart here i would show you spx forward p/e vs 5y5y breakeven minus 10yr real yield and the story would be clear

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