Looking beyond the new paradigm

Article Abstract:

US equities appear expensive using conventional measures, and this seems to be the explanation for Warren Buffet having sold equities to purchase bonds. Stock prices could still rise further although they may be expensive. Bond yields are not likely to drop due to changes in inflation expectations but they could drop in US savings rates rise. The risk premium for stocks could drop which would lead to a price rise even if bond yields stay constant. A lower risk premium could occur if investors take a longer term view or if they develop a lack of attention to short term risk.

Prices and rates, Financial markets

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US: crash unlikely

Article Abstract:

US equities have risen by 35% in 1995 but they are not likely to see a sharp drop in 1996, according to GNI Research. The price-earnings ratio for US shares is not much above the long-term average and below the cyclical peak. An increase in earnings growth has helped power the market. The market as a whole would not be seriously hit by a sell-off affecting technology shares which account for only part of the rises seen in 1995. Share prices tend to rise more often than they fall, on an annual basis.

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Wall Street: two halves

Article Abstract:

Morgan Stanley's Byron Wien sees US share prices as likely to rise in 1st half 1997, only to fall in the second half of the year. Bond yields are likely to drop in 1st half 1997 but they may then rise in the second half. Stronger growth could affect bond yields as could a reduction in interest in bonds from foreign buyers due to a view among the Group of 7 nations that the US dollar has risen far enough. This could lead to a drop in share prices as bond yields rise.

Economic aspects, Government securities

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