As rates hover at record highs and international geopolitical tensions rise, the Bank of England’s remarks come at a time when many well-known technology stocks trade at a significant premium to the S&P 500.
The price-to-earnings ratios for Microsoft, Alphabet, and Nvidia are 29, 21, and 31 times next-twelve-month earnings, respectively, even after a decline in several technology companies following the recent rise in rates. The PE for the S&P 500 is around 18 times in contrast.
The BoE reported that credit spreads for investment-grade and high-yield bonds denominated in U.S. dollars were more condensed than those for those issued in euros or pounds.
Additionally, “several indicators of U.S. stock risk premia remained well within the lower quartile of their historical distribution, driven mostly by the ongoing strength in the U.S. tech sector,” according to the research.
Although a central bank has warned about valuations before, this is undoubtedly not the first occasion; however, in general, central bankers would prefer not to express a view on any particular market price. When it came to the subprime mortgage crisis, Lehman Brothers’ demise, and the 2008 Global Financial Crisis, former Fed Chair Ben Bernanke, for instance, kept a very low profile.