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.
Interest Rates / Bonds
Actionable market insights delivered to your inbox weekly
Equity Risk Premium Isn’t There
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.
Market Sweats Trump Tweets Over Powell
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…