To understand these questions, we use a model relating equity prices and macroeconomic variables to reverse stress-test the recent US equity-market returns. The discounted-cash-flow model connects the price of equity to factors driving the expected future cash flows and how they are discounted to reflect their present value. Three factors are most relevant:
SINGAPORE (Mar 20): With the outbreak of the Covid-19 pandemic, market downturn and fear of worse, investors confront a key question: What have the markets already priced in? Are there scenarios in which current valuations reflect a panicked overreaction, or could investors expect further declines as the virus and economic impact spread?
Four scenarios that could explain recent market repricing
