Bought the June lows. While your general comments are helpful, many bears were just way too bearish in June. Sorry but nominal GDP/gdi very strong. Earnings "shoe" didnt drop. Inflation keeps rolling over and I see economic expansion. Market and economy can take 3.5-4% FFR imho.
I did. Not a big TA guy, but valuations compressed too much. Agian not sure if that was the bottom or not, but market possibly confusing economic strength (or lack there of clearly) vs QT/fed tightening. Interesting times but I see continued recovery barring exogenous events (like Putin nuking , China invading)
You realize that valuation, in the short-run say 1 year or less, is statistically insignificant indicator of the market. Over the 10 year horizon, it is the only significant indicator.
I thoroughly enjoy reading your articles. I am new to the markets and your articles are great educational reads for someone like me. I came across a concept in the article that I am unable to wrap my head around "The yields are inversely correlated to the multiple investors will pay for earnings". I would be obliged if someone could please help explain this.
Yes and another way to think of it is the discount rate an equity investor uses when valuing an equity. This discount rate is related to the multiple investors use
I get the BEER metric, comparing bond yields to PE multiple of stocks. If I have understood this correct in a scenario where bond yields are more attractive then money flows out of equity into bonds and ultimately leading to a drop in PE multiples
Bought the June lows. While your general comments are helpful, many bears were just way too bearish in June. Sorry but nominal GDP/gdi very strong. Earnings "shoe" didnt drop. Inflation keeps rolling over and I see economic expansion. Market and economy can take 3.5-4% FFR imho.
Perhaps you read my "Inflection Point" piece where I suggested the price action was indicative that there were too many bears and too much pessimism.
I did. Not a big TA guy, but valuations compressed too much. Agian not sure if that was the bottom or not, but market possibly confusing economic strength (or lack there of clearly) vs QT/fed tightening. Interesting times but I see continued recovery barring exogenous events (like Putin nuking , China invading)
You realize that valuation, in the short-run say 1 year or less, is statistically insignificant indicator of the market. Over the 10 year horizon, it is the only significant indicator.
Understood. I suppose what Im trying to say is that I was confident Q2 earnings would hold or rather they won't compress much. But yea, you're right.
Thanks. Timing isn't easy. Ultimately the Fed will decide.
Perhaps. However, the market forced the Fed's hand on the last 2 hikes so maybe the market will decide
Hi,
I thoroughly enjoy reading your articles. I am new to the markets and your articles are great educational reads for someone like me. I came across a concept in the article that I am unable to wrap my head around "The yields are inversely correlated to the multiple investors will pay for earnings". I would be obliged if someone could please help explain this.
Thankyou
Udit
When yields go up, PE multiples drop. Rising yields increase bonds' attractiveness compared to equities.
Yes and another way to think of it is the discount rate an equity investor uses when valuing an equity. This discount rate is related to the multiple investors use
I get the BEER metric, comparing bond yields to PE multiple of stocks. If I have understood this correct in a scenario where bond yields are more attractive then money flows out of equity into bonds and ultimately leading to a drop in PE multiples