With bond yields spiking to 2 year highs thanks to mass selling by foreign investors (and I'm sure plenty of US ones as well) a simple exercise in terms of what higher yields do to equity valuations is probably in order. Check out Brett Arends' very interesting piece in which simple math suggests that fair value for the stock market has just been reduced by 30%. And if yields normalize to their long term level of 4.5%, fair value will be reduced by 50%:
You can play with the numbers. I've applied different discount rates, adding in an 'equity risk premium' for the extra return stock-market investors want to earn above risk-free Treasury bonds. I've assumed the stream of dividends will grow year after year. None of that changes the direction of the math. (Indeed, if we assume dividends will rise over time, which seems reasonable, the math gets even worse — higher interest rates reduce the valuations by even greater amounts). Taking the ten-year Treasury rate from May's 1.6% to a "normal" 4.5% adds about three percentage points to the discount rate. Mathematically, that can slash the valuation of the stock market by 30% to 50% under basic financial calculations.