Long-term Treasury yields are sending stocks a message the market hasn’t fully priced in, with the 30-year near 5.06%-5.09% and the 10-year around 4.525%, both comfortably above the S&P 500’s own earnings yield of roughly 3.4%-3.9%. However, equities haven’t blinked: the S&P’s forward P/E sits near 20-21 times versus a ten-year average closer to 19, even as the risk-free alternative now pays more than stocks yield on their own earnings. That combination — rich multiples against rising long rates — is the classic setup where investors start demanding more from earnings growth to justify holding stocks over bonds, and the roughly 23% profit growth analysts are penciling in this year is exactly what’s being asked to carry that weight. Technically, the gap between stock and bond yields is sitting at a decision point rarely seen outside of stretched markets, one where continued strength depends on calm inflation data and earnings broadening beyond a handful of technology names. Whether stocks grow into that gap or bonds pull it the other way, the relationship between the two markets is worth watching closely. Opportunities exist for those reviewing how their portfolio risk is split between the two.

For additional information and risk parameters please contact Mitch LaRocca @ 972-387-0080 or mitch@dallascommodity.com