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Actual S&P 500 earnings growth has exceeded expectations during the last few years.
Will it be the case again this quarter? Source: The Market Ear, Factset
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
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
Nvidia $NVDA carried the S&P 500 $SPX in 2024
The AI leader drove 22% of the index’s total gains. Apple $AAPL, Amazon $AMZN, and Meta $META added another 19% combined. Broadcom $AVGO chipped in nearly 5%. These 5 companies powered almost half of the index's 2024 returns. Source: Carbon Finance
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