Bloomberg Intelligence's 'Equity Market Minute' 9/23/2022

Gina Martin Adams discusses the significant derating of the US equity market due to rising interest rates, focusing on long duration equities and mega cap equities. Long duration stocks, with future-concentrated cash flows, have seen a PE ratio decline from 37 to 25 times forward earnings. Mega cap equities, comprising 23% of the S&P 500, are also vulnerable due to their high duration, potentially leading to further market corrections.

What has been the impact of rising interest rates on long-duration equities?

• Their market share has expanded.

• Their cash flows have become more immediate.

• Their median PE ratio has decreased.

• Their median PE ratio has increased.

What is a characteristic of long-duration equities?

• They have a stable PE ratio.

• They are unaffected by interest rate changes.

• Their cash flows are concentrated in the future.

• They have immediate cash flows.

How does the current median PE ratio of long-duration equities compare to pre-crisis levels?

• It is significantly lower.

• It is significantly higher.

• It is in line with pre-crisis levels.

• It is unrelated to pre-crisis levels.

What percentage of the S&P 500 market cap is made up by mega cap equities?

• 10%

• 23%

• 50%

• 75%

Why are mega cap equities considered vulnerable to corrections?

• They are priced at a 50% premium.

• They have a lower duration than the S&P 500.

• They have minimal market influence.

• They are unaffected by interest rate changes.