Bond yields have risen. This, in theory, should make the shares less attractive in terms of relative valuation.
However, the recovery of the stock market has hardly derailed, as the performance of the TMUBMUSD10Y three years from the Treasury,
it reached 1.20% on Monday, extending the advance by almost a quarter of a point this year. US ES00 stock futures,
pointed to an optimistic start on Monday and European stocks rose. The S&P 500 SPX,
it climbed close to 5% last week as it set its seventh highest record of the new year.
Société Générale strategists led by Roland Kaloyan examined the actions facing the Treasury at ten years, with a maximum of 11 months. They looked at profit returns (basically, futures prices became their head) and compared them to bond yields.
As the chart shows, the gap between earnings and bond yields is not as narrow as at the end of 2018, when stocks fell. The current spread suggests that stocks could absorb Treasury yields in excess of 1.5%, strategists said. And assuming earnings remain in line with analysts ’expectations, U.S. and European equities markets could absorb 135 basis points of tightening by the end of the year, strategists said.
Analysts expect S&P 500 earnings to grow 24% this year and 16% next year, and for Stoxx Europe 600 SXXP,
corporate profits will grow 41% this year and 16% next year. “We remain constructive in equity markets, but US and / or European companies do not offer these EPS [earnings per share] Growth expectations are probably a greater risk to (respective) equity indices today than rising bond yields, ”strategists said.