US | Are asset prices misaligned from macro fundamentals, and if so, what does that imply?

Summary

The quick and strong increase in asset prices after the Covid-19 shutdown has raised concerns about potential bubbles. An inquiry into the historical alignment of equities, investment-grade corporate bonds, and home prices to broad macroeconomic metrics finds overvaluation in the equities asset class.

Key points

• Key points:
• Equities are overvalued relative to their macro-fundamentals baseline
• Investment-grade corporate bonds are in line with fundamentals as they tend to be most of the time
• Home prices are starting to detach from their macroeconomic equilibrium but remain close to it for the time being

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