Chart of the Week - Stocks are expensive, bonds are cheap...
Following the tariff tantrum turnaround stocks are up and bonds are down — and we’re right back to stocks being expensive (+bonds cheap) again.
Charts like this week’s are probably about as unpopular as it gets at the moment.
On the equity side, emboldened bulls point out earnings resilience, AI/tech blue skies, and prospects of deregulation and tax cuts driving the bull market onwards and upwards after a late-cycle reset.
On the bond side, bearish narratives around deficits, debt, and downgrades hang overhead along with policy uncertainty and tail risks for foreign holders, and the prospect of “outgrowing debt“ meaning higher nominal growth and higher for longer interest rates.
But here’s the point to ponder this week: the way valuation charts like this resolve is almost always unthinkable at the time.
In 2000 no one thought stocks would fall or bonds rise.
in 2003 no one thought stocks would recover or bonds lose luster.
In 2022 no one thought stocks and bonds would both get dunked.
But the clues where there in the valuation indicators.
So sometimes it’s not about coming up with grand narratives and macro forecasts, sometimes it’s just as simple as putting together good objective indicators and studying where the pressures are building up. $S&P 500(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$
Key point: our indicators are saying stocks are expensive and bonds are cheap.
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