The sp500 P/E ratio used to be tightly correlated to the US 2 year yield (inverted on the chart), i.e the lower the 2 year yield, the higher the P/E ratio and vice versa
Well, this is no longer the case as a giant crocodile jaw has been forming. Which of the 2 will bind firts? Source. Jeroen Blokland, True Insights
The S&P 500 earnings yield minus risk-free cash rate (3-month treasury bill) has dropped to its lowest level (-90 basis points) in 23 years
Source: BofA
91 is the number of trading sessions since at least a 1.5% sell off session in SPX
This length of time without a 1 day equity shock is rare ... has happened ~five times in the last 15 years. Source: Goldman Sachs, TME
As Goldman's Brian Garrett noted yesterday, it has been 91 days since the sp500 suffered a 1.5% loss or greater in a day...
That's unusual - it has happened only 5 times in the last 15 years. As we have discussed recently, Sep + Oct are seasonally-volatile months... Source: Goldman Sachs
Inflation has been a boost to sp500 companies top-line growth
Now that inflation starts to cool down, could it work the otehr way around? here's the view from Morgan Stanley: "Our boom/bust framework would suggest inflation as it relates to corporate earnings (i.e., pricing) falls toward zero or even below. This is likely to have a significant impact on sales growth and, consequently, on earnings growth as negative operating leverage takes hold." Source: TME
Mind the gap: The valuation of S&P 500 has become cheaper but attractiveness vs interest rates has decreased massively as US 10y real yields now at almost 2%
Chart via Goldman Sachs thru HolgerZ
ANALYSTS ARE RAISING QUARTERLY S&P 500 EPS ESTIMATES FOR THE FIRST TIME SINCE Q3 2021
At the end of the earnings season for the second quarter, have analysts lowered EPS estimates more than normal for S&P 500 companies for the third quarter? The answer is no. During the months of July and August, analysts increased EPS estimates for S&P 500 companies for the third quarter. The Q3 bottom-up EPS estimate increased by 0.4% (to $56.10 from $55.86) from June 30 to August 31. While analysts were raising EPS estimates in aggregate for the third quarter, they were also increasing EPS estimates for the fourth quarter. The bottom-up EPS estimate for the fourth quarter increased by 0.6%. Source: Factset
Is the US stock market severely mispriced?
Typically, the dividend yield on the S&P 500 is well above the US 30y real yield. That has changed. Source: Bloomberg, HolgerZ
