Will Rising Bond Yields Sink the Stock Market?

Based on the last four cases, it seems that equities can rise along with rising bond yields, but only if earnings are also rising. (See Chart 1). This makes sense from a discounted-cash-flow perspective. Earnings must outpace a rising discount rate in order for the market to rally.

The earnings cycle appears to have turned upward. (See Chart 2). But will it continue? January’s earnings reports should provide the answer. Let’s see if the “message of the market” will translate into improved fundamentals, as yours truly has claimed.

Chart 1. S&P 500 vs bond yield

Chart 2. Earnings appear to have bottomed

 

By | 2016-12-15T09:45:40+00:00 December 15th, 2016|Categories: Market Strategy Report|0 Comments

About the Author:

Mark Ungewitter is a Senior Vice President & Investment Officer at Charter Trust Company. He was formerly Director of Portfolio Management at Investors Bank and Trust in Boston, Massachusetts. He holds an M.S. from Bentley University and a B.S. from Massachusetts College of Liberal Arts. He is a member of the American Association of Professional Technical Analysts.

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