Market View: Stocks—Does Low Inflation Boost Valuation?
The value of investments in equity securities will fluctuate in response to general economic conditions and to changes in the prospects of particular companies and/or sectors in the economy. No investing strategy can overcome all market volatility or guarantee future results. Market forecasts and projections are based on current market conditions and are subject to change without notice. Due to market volatility, the market may not perform in a similar manner in the future. No investing strategy can overcome all market volatility or guarantee future results.
The price-to-earnings [P/E] ratio is a measure of valuation. It is a company's share price divided by its earnings per share. The P/E ratio can also be calculated for the companies in a stock index such as the S&P 500.
Earnings per share (EPS) is a company's earnings divided by the number of shares outstanding. This can also be computed for the companies in a stock index such as the S&P 500.
The Consumer Price Index (CPI) is a measure of inflation published by the Bureau of Labor Statistics. The core CPI excludes food and energy prices
The Personal Consumption Expenditure price index is a measure of the average increase in prices for all domestic personal consumption. It includes data from the U.S. Consumer Price Index and Producer Price Index and is compiled by the Bureau of Economic Analysis. The core PCE price index is defined as personal consumption expenditures (PCE) prices excluding food and energy prices.
In CPI swap contracts, one party agrees to make a payment at a fixed interest rate, which is based on the current, expected rate of inflation, and is compounded over the life of the contract. The other party in the CPI swap contract has agreed to make a payment at a variable interest rate, which is based on the actual rate of inflation over the life of the contract. The actual rate of inflation is measured by the cumulative change in the headline Consumer Price Index—including food and energy—over the life of the contract.
The S&P 500® Index is widely regarded as the standard for measuring large cap U.S. stock market performance and includes a representative sample of leading companies in leading industries.
The Deutsche Bank 5-Year CPI Swaps Index is provided by Deutsche Bank AG and is based in U.S. dollars, provides intraday price frequency, and is subject to a one-day lag. It is designed to track the performance of five-year CPI swaps.
Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.
The opinions in Market View are as of the date of publication, are subject to change based on subsequent developments, and may not reflect the views of the firm as a whole. The material is not intended to be relied upon as a forecast, research, or investment advice, is not a recommendation or offer to buy or sell any securities or to adopt any investment strategy, and is not intended to predict or depict the performance of any investment. Readers should not assume that investments in companies, securities, sectors, and/or markets described were or will be profitable. Investing involves risk, including possible loss of principal. This document is prepared based on the information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy and completeness of the information. Investors should consult with a financial advisor prior to making an investment decision.