Investors are questioning the relevance of the current level of share prices. Economists at Natixis highlight the two conditions which, if met, imply that – US and Eurozone – equity markets are not overvalued.

There are two conditions that, if met, imply that current share prices are not overvalued 

The first condition is that real long-term interest rates (currently 1% in the US and 0.5% in the Eurozone) do not rise significantly. This condition is difficult to meet: the increase in public and private investment linked to the energy transition, water management and industrial reshoring is likely to lead to a shortage of savings and therefore a rise in real long-term interest rates.

The second condition, particularly in the US, is that artificial intelligence generates additional productivity gains. Opinions differ on this question, but it can only be said that the internet has been associated with a marked decline in productivity gains, whereas the opposite was initially believed (in the late 1990s).