10k Words | July 2025
Valuations, revisions, interest rate expectations, the private capital liquidity problem & shifting sands in mortgage markets
Apparently, Confucius did not say “One Picture is Worth Ten Thousand Words” after all. It was an advertisement in a 1920s trade journal for the use of images in ads on the sides of streetcars...
We get a bit fixated on US equity valuations, with Vanguard highlighting the high hurdles required to achieve another decade of >12% returns; even as the 10 year bond yield has been more competitive and tariffs drive negative earnings revisions in the US. The Ex-US equities world has been fairing better out of the tariff scenario. We check in on interest rate expectations in the US and Australia. Bain bemoans a softer global buyout environment lately while The Information tackles the private market liquidity problem graphically. Finally, the US office CMBS delinquency rate charts near-vertical while Aussie mortgage arrears have been on the rise.
Total market cap of S&P 500 firms >10x Price/Sales (US$ trillion)
Source: Kailash Capital Research
Repeat of returns >12% for US equities requires record-high profit margins, record-high valuations, or a combination of both
Source: Vanguard
S&P 500 Price/Free Cash Flow (cap weighted and equal weighted) v index level
Source: Fidelity
US 10-year government bond yield
Source: FRED
Consensus S&P 500 earnings by calendar year
Source: Columbia Threadneedle
Forward 12-month global earnings forecasts & net balance of upgrades v downgrades
Source: Barclays Private Bank
% of companies with downwards earnings revisions & impact of tariffs
Source: Schwab
The rest of the world is ahead since Feb 19 - in common currency
US market still looking for a Fed Reserve cash rate cut in September - but not quite as sure as a week ago
Source: CME
Australian market backing in a 25 basis points rate cut by the RBA in July
Source: ASX
Global buyout deal value, by region ($US billion)
Source: Bain, Dealogic
Scarcity of opportunities to convert private investments into cash
Source: The Information
Australia mortgage arrears
Source: cotality
US Office CMBS delinquency rate %
Source: Trepp, WOLFSTREET.com