S&P 500 Seems to Think Real Interest Rates Are 0.2% Instead of 2.0% (Same Digits but in the Wrong Order)

Current real rates historically suggest a much lower S&P 500 valuation…

Highlights

• Current real rates historically suggest a much lower S&P 500 valuation…

• … and despite that fund managers maintain their risk-on mentality

• Utilities and Energy papers offer a way to play the rising energy demand theme

• Japanese imports suggest a strong domestic economy

Key Takeaways

• U.K. Inflation Jumps: The big news overnight was the hotter-than-expected U.K. consumer inflation report for January, which hit a 10-month high of +3.0% YoY from +2.5% in December. The triggers — a 20% VAT on private school fees, airfares, motor fuel, and food (meat, bread, and cereals) — tell us nothing about the underlying state of demand, and so the BoE would be well advised to look through the data.