New stock market valuation model discussed by Oliver Wyman CEO at Davos

NEW YORK, June 2, 2022 /PRNewswire/ — The Oliver Wyman Forum, At Oliver Wyman’s research and leadership community, today released the third in a series of five white papers that, taken together, provide one of the most comprehensive analyzes of U.S. financial markets ever developed. Olivier Wyman is a Marsh McLennan (NYSE: MMC) company.

“Revisiting the Science of Valuations” combines finance, accounting, analytics, economics, history and sociology to reinvent concepts of financial analysis that were developed half a century ago but have stagnated since.

This white paper is broad in scope:

First, it introduces a new measure of equity market valuation that is faster than the price-to-earnings (P/E) ratio and less volatile than the cyclically-adjusted price-to-earnings (CAPE) ratio based on average earnings. over 10 years. In other words, the new evaluation metric beats both even on their best features.

Second, the document reveals 10 essential facts about the US economy and markets that are not common knowledge among professional investors, but should be. For example, we show that equilibrium inflation expectations are a poor measure of market sentiment on expected inflation, but a very good, albeit misunderstood, measure of risk conditions.

Third, it confirms that traditional CAPM fails in practice, but also that the failure is due to runtime issues. It proceeds to address these issues and shows that the redesigned CAPM is a powerful explainer of stock prices over the past century and a half.

Finally, the paper turns to the Treasuries market, highlighting 10 largely unknown risks that both influence long-term Treasuries and hide the true risk-free interest rate that helps determine if stocks are overvalued. or undervalued.

Nick StuderCEO of Olivier Wyman, recently discussed the new model during a panel discussion at the World Economic Forum titled How Far Are Markets From Economic Reality? The discussion brought together senior leaders from the public and private sectors and examined how markets have remained relatively buoyant despite the pandemic, supply shocks and geopolitical strife.

Jacques Caesarformer managing partner of Olivier Wyman and the author of the five white papers, notes that different parts of the third document will be of interest to different communities. For example, the academic community will be more interested in re-engineering the CAPM. Treasury and Federal Reserve officials will be most interested in quantifying the link between fiscal and monetary policy and stock prices. And investors and fund managers will improve their decision-making by taking advantage of highly accurate modeling of the true price drivers of stocks and Treasuries.

About the Oliver Wyman forum

The Oliver Wyman Forum is At Oliver Wyman’s think tank, dedicated to building communities of leaders to deliver new solutions to shared global challenges. The Oliver Wyman Forum engages leading thinkers and develops new research to inspire action based on innovative ideas on three fronts: reframing industry, business in society, and global economic and political change. With our growing and diverse community of experts, we strive to make a difference. For more ideas, sign up to receive Ready or Not, our monthly newsletter, follow us on LinkedIn or visit www.oliverwymanforum.com.

About Olivier Wyman

Olivier Wyman is a world leader in management consulting. With offices in over 70 cities across 30 countries, Olivier Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management and organizational transformation. The company has more than 5,700 professionals worldwide who work with clients to optimize their businesses, improve their operations and risk profile, and accelerate their organizational performance to capture the most compelling opportunities. Olivier Wyman is a Marsh McLennan Company [NYSE: MMC].
For more information, visit www.oliverwyman.com. Follow Olivier Wyman on Twitter @OliverWyman.

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Melvin B. Baillie