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EQUITIES: US Equity & Credit Yield Differential Tests GFC Levels

EQUITIES
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  • The earnings yield on S&P 500 stocks is trailing BBB-rated corporate bond yields by 130bps, marking the most negative spread since the GFC and now testing dot-com bubble levels. This unusual dynamic highlights stretched equity valuations, with the S&P 500 and Nasdaq 100 trading at record-high multiples, driven largely by the Magnificent Seven stocks.
  • Corporate credit yields are trading in line with their median for the past 20 years, while earnings yields on stocks are well below its historical median.
  • As stretched as equity valuations may seem at the moment, there for now seems to be little to stop them trading higher, earnings from the Magnificent seven has been solid, banks continue to increase their yearly target for the S&P 500,
  • S&P price to book value is trading at levels never seen before, last 5.2, the next highest was 5.16 made during the dot com bubble burst, see chart. 
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  • The earnings yield on S&P 500 stocks is trailing BBB-rated corporate bond yields by 130bps, marking the most negative spread since the GFC and now testing dot-com bubble levels. This unusual dynamic highlights stretched equity valuations, with the S&P 500 and Nasdaq 100 trading at record-high multiples, driven largely by the Magnificent Seven stocks.
  • Corporate credit yields are trading in line with their median for the past 20 years, while earnings yields on stocks are well below its historical median.
  • As stretched as equity valuations may seem at the moment, there for now seems to be little to stop them trading higher, earnings from the Magnificent seven has been solid, banks continue to increase their yearly target for the S&P 500,
  • S&P price to book value is trading at levels never seen before, last 5.2, the next highest was 5.16 made during the dot com bubble burst, see chart.