We like to attach charts to our weekly work to give readers something to focus on, besides my boring verbiage and market musings.
The selloff in equities is somewhat surprising the last two days, while the jump in the 10-year Treasury yield is not, but looking at the attached chart of the SP 500, the March, 2000, high was 1,555 (not shown), while the October, 2007 high of 1,576.09 is seen as part of the “twin peaks” or double-top in 2007.
In 2007, the SP 500 was trading about 17(x) – 18(x) forward earnings, while today we are closer to 14(x). In March, 2000 the SP 500 was trading at 28(x) forward earnings, maybe higher.
Favor the stock market over the bond market in the next 1,3 and 5 years. The risk – reward is far more favorable in stocks than bondland.
Today, the 10-year Treasury is trading above the March ’12 high of 2.39%. We could exit the day near 2.43% for the Treasury 10-year yield which likely means that Treasuries are broken.
BUT (there is always a but), we should get a bounce in bonds shortly (hopefully) to keep it an orderly decline.
Watch 1,576 and 1,555 as key support areas for the SP 500. Below that and it looks like 1,500.
We needed a correction in the stock market – through yesterday, the SP 500 was up 14% year-to-date. This action is good.
Trinity Asset Management, Inc. by:
Brian Gilmartin, CFA
Portfolio manager