Source: Refinitiv, Bloomberg, UBS, as of March 2024

The chart above is one of the many metrics that provide the Chief Investment Office with confidence that the recent market performance is largely justified. The current relationship between the market’s 12-month-trailing price-to-earnings ratio relative to the 10-year US Treasury rate is largely in line with historical averages (see the red star and its proximity to the trend line).

In moments when valuations have been clearly stretched, they stray notably from the trend line (see the red circles). The dotcom bubble (1999–2000) was a clear moment when risk appetite resulted in too much exuberance in risk assets. Similarly, in the post-COVID period, fiscal and monetary stimulus and large accumulated savings, along with the rise of retail trading platforms, largely influenced unwarranted valuations.

However, this week’s chart, in line with other analyses that CIO has carried out, shows that equities on average are trading neither “expensive” nor “cheap.” Rather, the market seems appropriately priced.

Therefore, even though at first blush—and amid the stories of new historic highs—some may be concerned, CIO thinks the risks investors face right now are pretty much the same as those of any other period. Perhaps, that is why the VIX index, a measure of market volatility, is currently below its average in the 2010–19 period (a pre-pandemic benchmark).

So, while pullbacks are always possible, CIO thinks investors should stay calm and remain invested.

Main contributor: Alberto Rojas