Home > Insights > Research > Three Dogs That Did Not Bark: Risk Premia and Stock Market Shocks

Executive Summary

  • Thereʼs a bone of contention among investors: Are U.S. equity values about right or far too high?
  • Based on the equity risk premium, stocks are either marginally expensive or fairly valued (depending on the data window).
  • Yet standard valuation ratios – such as market capitalization-to-GDP, Tobin’s Q, CAPE and market cap-to-corporate profits – suggest stock prices are severely inflated.
  • Equity values are vulnerable to three types of risk premia: the conventional equity risk premium, the risk of monetary tightening and the prospect of decreasing inequality.

Download PDF

For an abridged version of this article, read our blog post, “U.S. Equity Values: The Three Dogs That Have Not Barked.”

The Author

Jamil Baz

Head of Client Solutions and Analytics

Josh Davis

Global Head of Client Analytics

Normane Gillmann

Quantitative Research Analyst

Related

Viewpoints
Emerging Market Investing: A Multi-Asset, Granular and Dynamic Portfolio Approach

This Research paper is a joint effort between PIMCO and GIC, Singapore’s sovereign wealth fund. GIC authors Grace Qiu Tiantian Ph.D., Ding Li, and Zhihui Yap collaborated with PIMCO’s Josh Davis, German Ramirez, and Helen Guo to produce this report.

Disclosures

London
PIMCO Europe Ltd
11 Baker Street
London W1U 3AH, England
+44 (0) 20 3640 1000

Dublin
PIMCO Europe GmbH Irish Branch,
PIMCO Global Advisors (Ireland)
Limited
3rd Floor, Harcourt Building 57B Harcourt Street
Dublin D02 F721, Ireland
+353 (0) 1592 2000

Munich
PIMCO Europe GmbH
Seidlstraße 24-24a
80335 Munich, Germany
+49 (0) 89 26209 6000

Milan
PIMCO Europe GmbH - Italy
Corso Matteotti 8
20121 Milan, Italy
+39 02 9475 5400

Zurich
PIMCO (Schweiz) GmbH
Brandschenkestrasse 41
8002 Zurich, Switzerland
Tel: + 41 44 512 49 10

PIMCO Europe Ltd (Company No. 2604517) is authorised and regulated by the Financial Conduct Authority (12 Endeavour Square, London E20 1JN) in the UK. The services provided by PIMCO Europe Ltd are not available to retail investors, who should not rely on this communication but contact their financial adviser. PIMCO Europe GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Europe GmbH Italian Branch (Company No. 10005170963), PIMCO Europe GmbH Irish Branch (Company No. 909462), PIMCO Europe GmbH UK Branch (Company No. BR022803) and PIMCO Europe GmbH Spanish Branch (N.I.F. W2765338E) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 32 of the German Banking Act (KWG). The Italian Branch, Irish Branch, UK Branch and Spanish Branch are additionally supervised by: (1) Italian Branch: the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act; (2) Irish Branch: the Central Bank of Ireland in accordance with Regulation 43 of the European Union (Markets in Financial Instruments) Regulations 2017, as amended; (3) UK Branch: the Financial Conduct Authority; and (4) Spanish Branch: the Comisión Nacional del Mercado de Valores (CNMV) in accordance with obligations stipulated in articles 168 and 203 to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008, respectively. The services provided by PIMCO Europe GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication.| PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2) . The services provided by PIMCO (Schweiz) GmbH are not available to retail investors, who should not rely on this communication but contact their financial adviser.
U.S. Equity Values: The Three Dogs That Have Not Barked
Next Article

Blog: U.S. Equity Values: The Three Dogs That Have Not Barked

XDismiss Next Article
PIMCO

MEA

unidentified

[change]

The information on this website is for residents of the Middle East and Africa only.

The products and services are available only to residents of this jurisdiction. The information on this website does not constitute an offer for products or services, or a solicitation of an offer to any persons outside of the Middle East and Africa who are prohibited from receiving such information under the laws applicable to their place of citizenship, domicile or residence.

PIMCO Europe Ltd (Company No. 2604517), is authorised and regulated by the Financial Conduct Authority (12 Endeavour Square, London E20 1JN) in the UK. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. © 2021, PIMCO Europe Limited. All rights reserved.

A company of Allianz