{"id":407320,"date":"2010-03-09T06:10:45","date_gmt":"2010-03-09T11:10:45","guid":{"rendered":"http:\/\/www.businessinsider.com\/why-stocks-are-stuck-the-case-of-the-deadly-discount-rate-2010-3"},"modified":"2010-03-09T06:10:45","modified_gmt":"2010-03-09T11:10:45","slug":"why-stocks-are-stuck-the-case-of-the-deadly-discount-rate","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/407320","title":{"rendered":"Why Stocks Are Stuck: The Case Of The Deadly Discount Rate"},"content":{"rendered":"<p><a href=\"http:\/\/blog.atimes.net\/?p=1387\">From Asia Times<\/a>:<\/p>\n<p>It&rsquo;s going to be tough for the S&amp;P to break above its present range. Last&nbsp;month we saw the equity market show extreme sensitivity to&nbsp;news from the Federal Reserve. It rallied when the&nbsp;Fed indicated that the economy was too weak to permit a cut in interest rates.&nbsp;Why should that be the case? There is actually a simple arithmetic answer to this question (although equity investors may be sorry they asked).<\/p>\n<p>&nbsp;At extremely low interest rates, stocks are extremely sensitive to changes in the discount rate. If the stock price is equal to e(P)\/r, that is, expected earnings over a discount rate, very strange things can happen when both the numerator (expected earnings) and the denominator (the discount rate) are extremely low.<\/p>\n<p>Much as I dislike the old Dividend Discount Model, it is useful for comparative statics (what happens when to one variable, in this case the price of the S&amp;P 500, when we change another variable, namely the risk-free rate).<\/p>\n<p><a href=\"http:\/\/blog.atimes.net\/?p=1387\"><strong>Read the whole story at Asia Times &gt;<\/strong><\/a><\/p>\n<p><a href=\"http:\/\/www.businessinsider.com\/why-stocks-are-stuck-the-case-of-the-deadly-discount-rate-2010-3#comments\">Join the conversation about this story &#187;<\/a><\/p>\n<p><b>See Also:<\/b><\/p>\n<ul>\n<li><a href=\"http:\/\/www.businessinsider.com\/the-three-major-near-term-risks-to-the-market-2010-3\">The Three Major Near-Term Risks To The Market<\/a><\/li>\n<li><a href=\"http:\/\/www.businessinsider.com\/us-futures-slip-euro-headed-lower-2010-3\">US Futures Slip, Euro Headed Lower<\/a><\/li>\n<li><a href=\"http:\/\/www.businessinsider.com\/fitch-us-vulnerable-to-interest-rate-shocks-uk-in-desperate-need-of-spending-cuts-2010-3\">Fitch: US Vulnerable To Interest Rate Shocks, UK In Desperate Need Of Spending Cuts<\/a><\/li>\n<\/ul>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~r\/TheMoneyGame\/~4\/FO1XEc0C_gE\" height=\"1\" width=\"1\"\/><\/p>\n","protected":false},"excerpt":{"rendered":"<p>From Asia Times: It&rsquo;s going to be tough for the S&amp;P to break above its present range. Last&nbsp;month we saw the equity market show extreme sensitivity to&nbsp;news from the Federal Reserve. It rallied when the&nbsp;Fed indicated that the economy was too weak to permit a cut in interest rates.&nbsp;Why should that be the case? There [&hellip;]<\/p>\n","protected":false},"author":632,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-407320","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/407320","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/632"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=407320"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/407320\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=407320"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=407320"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=407320"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}