adriant

adriant

  • Joined: December 24, 2025
  • Articles: 503

The Cost of Capital Reality Check: Why Rising Bond Yields Dictate the Next Market Cycle The Cost of Capital Reality Check: Why Rising Bond Yields Dictate the Next Market Cycle

The Cost of Capital Reality Check: Why Rising Bond Yields Dictate the Next Market Cycle

Can the stock market significantly advance with bond yields going higher? That's what investors are trying to gauge. As governments around the world look increase their (already high) levels of borrowing and spending -- it's plausible bond yields are set to rise further. And it's not hard to explain why... demand is falling as supply increases. But at what point does the stock market say enough?

The Bond Vigilante Vote: Why 5% Yields and a $4 Trillion Deficit Could Break the S&P 500 The Bond Vigilante Vote: Why 5% Yields and a $4 Trillion Deficit Could Break the S&P 500

The Bond Vigilante Vote: Why 5% Yields and a Trillion Deficit Could Break the S&P 500

Markets paused to take a breath this week following a six-week ~22% surge. The S&P 500 surrendered a routine ~2.80% - after touching a 12-week high of 5,968. With the market trading at 22x fwd earnings (a premium in any environment) - investors are arguably more mindful of (a) ongoing tariff risks- with new threats from Trump on Europe and Apple; and (b) the thread of rising bond yields - and any potentially widening of the deficit.

S&P 500 Earnings Trap: Why Market Optimism Faces a Macro Reality Check S&P 500 Earnings Trap: Why Market Optimism Faces a Macro Reality Check

S&P 500 Earnings Trap: Why Market Optimism Faces a Macro Reality Check

Factset reported S&P 500 companies are "highly uncertain" for the balance of this year. This is well above the 10-year average of 179; and more than double the previous quarter. And it makes sense... it's impossible to know what impact tariffs could have over the coming two to three quarters (or more). But what's almost certain - any impact won't be positive. We can say with certainty that tariffs (even if only 10%) are an economic burden - where I estimate the cost to both companies and consumers to be more than $300B. So who will pick up the tab?

Global Trade Risk: The $300B Economic Burden of Tariffs Global Trade Risk: The $300B Economic Burden of Tariffs

Global Trade Risk: The 0B Economic Burden of Tariffs

The stock market has risen at a dizzying speed the past six weeks - up over 20%. I would reduce risk at these levels. We're now back at valuations similar to the beginning of the year - however the risks are now considerably higher. But let's say the net result is a tariff rate in the realm of between 10% and 30% - that would be disastrous. My back-of-the-envelope math estimates a substantial $300B "economic burden" that both companies and consumers will be forced to bear.

Math Trap: Why S&P 500 Valuations Lack a Critical Margin of Safety Math Trap: Why S&P 500 Valuations Lack a Critical Margin of Safety

Math Trap: Why S&P 500 Valuations Lack a Critical Margin of Safety

The S&P continues its impressive six week rally - up over 22% from its early April low of 4,835. At 5,916 - this represents a forward price to earnings (PE) ratio of ~22x - with earnings per share (EPS) expected to be ~ $270 this year. If we take the inverse of 22x - that gives us the market's earnings yield; i.e., 4.56%. The question whether 4.56% represents a good risk/reward? There's an easy way to answer that... let's explore.

The V-Shaped Recovery: Assessing the Fundamental Foundation The V-Shaped Recovery: Assessing the Fundamental Foundation

The V-Shaped Recovery: Assessing the Fundamental Foundation

Markets staged a 'rip your face off' rally on the back of Trump's 90-day pause on 145% tariffs with China. Over the past three months - the rally ranks among the best we've seen in three decades. The question is can it continue; and what needs to happen? My primary concern - it's not supported by any major change in monetary policy...

A Reactive Fed: Why Trade Policy Now Dictates Interest Rate Volatility A Reactive Fed: Why Trade Policy Now Dictates Interest Rate Volatility

A Reactive Fed: Why Trade Policy Now Dictates Interest Rate Volatility

What matters more to the market: (a) a Trump tweet on any potential trade deal; or (b) Jay Powell's statement on monetary policy? If you ask me it's the former. Today's statement from the Fed was almost a non-event for the market. Powell maintained rates in the 4.25% to 4.50% target range (which was expected). However he told the market that the risk of "higher unemployment and higher inflation" have risen since their last meeting. That's problematic...

Earnings Divergence: Decoding S&P 500 Valuations and the Mag 7’s Growth Deceleration Earnings Divergence: Decoding S&P 500 Valuations and the Mag 7’s Growth Deceleration

Earnings Divergence: Decoding S&P 500 Valuations and the Mag 7’s Growth Deceleration

We're about half way through Q1 2025 earnings. So far they're showing double-digit YoY growth. However what companies are struggling with is guidance. They have very limited visibility through the "tariff windshield". And whilst stocks are reacting well to past earnings and optimism Trump will back down on his draconian tariffs - it's difficult to gauge both how much damage has been done? For now, markets remain optimistic however I would treat this rally with caution.

The Big Tech Guidance Gap: Navigating AI CapEx & The Psychology of Valuations The Big Tech Guidance Gap: Navigating AI CapEx & The Psychology of Valuations

The Big Tech Guidance Gap: Navigating AI CapEx & The Psychology of Valuations

When Charlie Munger was asked the secret to his success - he answered “I’m rational.” Rational is not paying "33x forward earnings" for a company like Apple or Microsoft - despite their quality. Rational is also not selling the S&P 500 when it plunges to trade at just 16x forward earnings - because you are worried about a possible recession. Rational is adding exposure to high quality assets when they are at or below their long-term mean. And the more below the mean they trade - the stronger your (long-term) conviction should be.

US Dollar Rally Ahead?

Are we about to see a US Dollar Index (DXY) rally sometime over the next few months? If I were to guess - yes. And if that's correct - it's not a tailwind for markets (or earnings). Before I look at the weekly chart - not all participants agree. Bank of America Securities views any strength in the US dollar index (which trades against a basket of six currencies) as short-lived and prefers to fade any greenback rallies. And that is probably accurate in the very short term.