S&P 500 futures are up 0.5% in premarket trading, bringing the index close to record highs once again.
At the same time, bearish voices are growing louder: some say U.S. stocks are in a “denial phase,” while some analysts have publicly predicted a 15% drop in the S&P 500. A senior executive at a major bank warned that inflation could prove stubborn and that interest rates may have further room to rise.
My core view: What’s weighing on SPY right now isn’t earnings, but long-term interest rates and concentration.
The U.S. 10-year Treasury yield is being publicly discussed at around 5.35%, its highest level since 2008. Higher rates directly push up the discount rate used in valuations.
Tech stocks’ outperformance relative to the rest of the S&P 500 constituents has been described as the largest on record, and the index’s gains are increasingly reliant on a handful of heavyweight stocks.
Historical data also suggest that U.S. stocks have posted positive returns in the 12 months after every midterm election since 1946, with a sizable average gain. That’s a strong argument for the bulls, but the sample is too small to hedge against today’s interest-rate risk.
So the market’s sudden focus on SPY isn’t because it’s cheap, but because “new highs” and “warnings” are appearing at the same time.
Here’s the question: If long-term yields don’t fall, is it still worth betting on a post-midterm-election seasonal rally?
At the same time, bearish voices are growing louder: some say U.S. stocks are in a “denial phase,” while some analysts have publicly predicted a 15% drop in the S&P 500. A senior executive at a major bank warned that inflation could prove stubborn and that interest rates may have further room to rise.
My core view: What’s weighing on SPY right now isn’t earnings, but long-term interest rates and concentration.
The U.S. 10-year Treasury yield is being publicly discussed at around 5.35%, its highest level since 2008. Higher rates directly push up the discount rate used in valuations.
Tech stocks’ outperformance relative to the rest of the S&P 500 constituents has been described as the largest on record, and the index’s gains are increasingly reliant on a handful of heavyweight stocks.
Historical data also suggest that U.S. stocks have posted positive returns in the 12 months after every midterm election since 1946, with a sizable average gain. That’s a strong argument for the bulls, but the sample is too small to hedge against today’s interest-rate risk.
So the market’s sudden focus on SPY isn’t because it’s cheap, but because “new highs” and “warnings” are appearing at the same time.
Here’s the question: If long-term yields don’t fall, is it still worth betting on a post-midterm-election seasonal rally?