Below are some of the most interesting articles, quotes and charts I came across this week. Click here to subscribe to our free weekly newsletter and get this post delivered to your inbox each Saturday morning.
There’s a growing disconnect between the prices of stocks and bonds.
"It seems bonds are adjusting to a post-QE world but for some reason equities haven't. If you had told me that rates were gonna be where the are now on Jan. 1 and earnings would be flat and the S&P would be up 12-13%, that's not part of my process." https://t.co/IkAAQkkgBK
— Jesse Felder (@jessefelder) November 1, 2023
Bonds have begun to reflect the reality of a “post-QE world” while stocks have yet to do so.
"The historical relationship between bond yields and the S&P 500 P/E multiple suggests that the recent disconnect can be corrected in one of two ways — either the equity market has further downside or yields will move lower." https://t.co/AKvLOrUJ1x pic.twitter.com/5kELvTpJn0
— Jesse Felder (@jessefelder) October 31, 2023
Moreover, the growing “liquidity hole” suggests bonds may not yet be done pricing it in.
'If the T-bill rate stays at 5% or higher, to get a risk premium in bonds you need a bond yield of 5.5% or higher. And given the liquidity hole, demand will need to come from private sector investors, who will require a risk premium relative to cash.' https://t.co/PtBw3eW5AX
— Jesse Felder (@jessefelder) October 31, 2023
Meanwhile, the message being sent by the yield curve is not, by any means, bullish for the broad stock market.
'The arrows in the graph below show the occasions where the spread between the 3-month T-Bill yield and the 10-year T-Bond yield was inverted, and it either became un-inverted, or the slope of the curve steepened by at least 100 basis points.' https://t.co/0T80AgQKTL pic.twitter.com/zi9kHKOBNO
— Jesse Felder (@jessefelder) October 30, 2023
And the forward guidance out of the corporate sector apparently confirms this view.
'At just over the half-way mark of the reporting period, "weak demand" is among the top trending phrases on earnings calls. If the pace of mentions holds for the next few weeks, it would be the most on record, according to data going back to 2000.' https://t.co/3jQDCthcH4 pic.twitter.com/sg3a6hVxrj
— Jesse Felder (@jessefelder) November 3, 2023
Thanks for reading and have a great weekend!
