This is the year of the improbable, a BCA Research piece points out. The United Kingdom voted to leave the European Union. Donald Trump is in fact the Republican presidential nominee and is close to Clinton in the polls. The unlikely underdog Leicester City soccer team won the English Premier League. Perenial loser Chicago Cubs remain the odds on favorite to win baseball’s World Series in 2016. And the stock market is rallying to fairy tale levels, based on valuation relative to bonds. Bond prices determine the relative risk premium investors should expect to receive from stocks Stock and bond…
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- Bond prices determine the relative risk premium investors should expect to receive from stocks
- For valuation levels to remain consistent, equity risk premium paid to investors needs to move to 5.5% -- resulting in a 20% loss of stock market value
- Looking ahead, Brexit vote could bind Europe closer while BCA recommends UK homebuilders over Euro Stoxx 600 in a long UK real estate short EU stocks play
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