BREAKING: The difference between the S&P 500’s earnings yield and BBB-rated corporate bond yield has dropped to -1.9%, the lowest in 15 years.
Excluding a brief period in 2009, this is the lowest level in 23 years. The gap has fallen by 4 percentage points over the last 5 years as US interest rates have risen sharply. In other words, less risky investment-grade corporate bonds now pay a higher yield than S&P 500 companies' profits relative to their stock prices. This metric suggests the market may be overvalued. Can this gap continue to widen? Source: Bloomberg, The Kobeissi Letter
Breadth matters. And what we currently see on us equities does not look healthy.
Here is a visual of the % of stocks outperforming the S&P500: ALL TIME LOWS. In other words, concentration risk measured in this way beats 2000 lows. Source: Samantha LaDuc on X, GS
Year 1 of the presidential election cycle is not that great, but still decent. 1928-2024 $SPX
Source: Mike Zaccardi, CFA, CMT, MBA
Mag 7 EPS vs SPX last 20 years
Source: GS, Mike Zaccardi, CFA, CMT, MBA
It’s Shorts Weather
A basket of 50 heavily-shorted stocks tracked by Goldman Sachs with market caps of at least $1 billion apiece is down 3.2% on the day as of 1:30 p.m. ET, undoing what had been a very strong start to the year. source : gs, bloomberg
Quantum computing stocks crash after AI godfather Jensen Huang exploded the quantum computing bubble with 3 lines:
"If you said 15 years for very useful quantum computers, that would probably be on the early side. If you said 30 is probably on the late side. But if you picked 20, I think a whole bunch of us would believe it." Source: HolgerZ, Bloomberg
Probably nothing
Source: Bianco Research L.L.C.
Should we get prepared for a choppy quarter???
The S&P 500 has gained ~1.0% on average in the first quarter after a US presidential election since 1950. It also historically comes with elevated volatility as market swings widen to both directions. On average, the first year of a new presidential cycle has seen an 8.2% average return. Source: The Kobeissi Letter, J-C Parets
