(1/2) Why are interest rates positively correlated with value:growth ratio? It’s simple. $TNX $VUG $VTV The value of any stock is the sum of its discounted future cash flows. The discount rate is directly related to the going interest rate. When interest rates rise, distant cash flows get more heavily discounted than short-term cash flows. This makes the stock’s earnings growth less relevant, and the current dividend yield more relevant. A high dividend yield is associated with value stocks. Thus, the value:growth ratio rises when interest rates rise.
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