A Snapshot of the Market for the Week Ended February 26, 2021:
Stock prices fell hard last week, especially on Thursday, as ten-year Treasury yields went another leg higher, jumping to a high of 1.61% and wreaking havoc across markets. Inflation is what is on the mind of investors, creating concerns that the Fed is not worrying enough. Yet it was the 30bp jump in real yields for ten-year Treasuries that caused the global bond tantrum. The swiftness reflected the growth prospects of the economy. Better growth is consistent with higher real rates. That is why I do not believe that the current level of interest rates is a threat to equity valuations. Goldman’s David Kostin argued in a weekend note to clients that S&P 500 EPS will be 10% higher than pre-pandemic levels in 2021. His key takeaway is that “keeping the current P/E constant, the 10-year yield would have to reach 2.1% to bring the yield gap to the historical median of 250bp.” Kostin’s target remains 4,300 for the S&P 500.
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By Hubert Marleau
By Hubert Marleau
