S&P 500 Hits All-Time High
The all-time high reached Friday is welcome news, but the devil will lie in bonds
Interest rates are far higher than when that last peak was made; the fed funds rate has risen from 0.25% to 5.5%. Inflation is well-above target by many measures. Polls show that the US populace thinks the economy is in a dire place. The bond market predicts a close-to-inevitable recession. So how can stocks set a record?
Is this rally about irrational exuberance, as Alan Greenspan might have put it? Possibly not. A range of sensible valuation metrics show multiples are rising, but still significantly cheaper than at the beginning of 2022
The S&P 500 has rallied by 35.3% since its nadir in October 2022
Then there’s the bond market.
Shiller’s “excess CAPE yield,” the prospects for stocks, relative to bonds, are about as bad as they've been since the dot-com bubble,
How much should we rely on these measures?
If bond yields stay elevated, presumably because inflation is sticky, then this new high will come to look like the high of October 2007
John Authers Bloomberg 22 januari 2024
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