Reckoning Is Coming for US Treasuries, Says Gundlach
DoubleLine Capital CEO Jeffrey Gundlach says a "reckoning is coming" for US treasuries. "You should be thinking about increasing your allocations to non-dollar investments," he said at the Bloomberg Global Credit Forum.
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Yahoo
21 hours ago
- Yahoo
Monitoring The Cape Ratio: Are Stocks Overvalued or Will the Bull Run Continue?
Amid a historic rebound, the S&P 500 has hit another all-time high after flirting with correction territory just three months ago in March. With the S&P 500 dropping more than 10% in March from its previous high of 6,144 in February, the benchmark has now rebounded and hit a new peak of over 6,180 on Friday. Such a fast recoup in the broader market is unprecedented and can sometimes take years. That said, it's certainly a worthy topic of whether stocks are overvalued or if there is indeed a clear path for a Bull market to continue. To do so, let's take a look at the Cape ratio, also known as the Shiller P/E ratio, and review the bullish sentiment that's lifting markets. Notably, the Cape ratio is used to calculate the price of the stock market or individual stocks relative to their average inflation-adjusted earnings over the last 10 years. Keeping this in mind, the Cape ratio smooths out fluctuations caused by economic cycles, providing a clearer view of whether stocks are overvalued or undervalued based on their historical average. Preluding the market correction earlier in the year, many analysts, including famed billionaire Jeffrey Gundlach, had called for a market recalibration based on the Cape ratio's reading of 38X earnings on the benchmark S&P 500, the second-highest level ever. This Clinically Adjusted Price-to-Earnings Ratio (CAPE) has roots that date back to 1934, when David Dodd and Warren Buffett's mentor Benjamin Graham proposed smoothing out earnings over multiple years in their investment book 'Security Analysis', which provided a foundational idea behind CAPE. Retroactively calculating historical earnings data for the U.S. stock market back to 1881, the Cape ratio was formally introduced by economists Robert Shiller and John Y. Campbell in 1988. Furthermore, the Cape ratio gained notoriety in the late 1990s and early 2000s, thanks to Shiller's warning of the dot-com bubble. Following the broader market's most recent and historical rebound, the Cape ratio on the S&P 500 is currently at 36X, which is once again well above its historical average of around 16-17X. Image Source: YCHARTS Despite the Cape ratio indicating stocks are overvalued, a clearer path to global economic growth has been established with the U.S. officially reaching a framework trade deal agreement with China on Friday. President Trump's 10% baseline tariff on most countries is set to expire on July 8, but has eased concerns that rattled the stock market, providing a 90-day pause on higher imposed country-specific tariffs. While this deadline is just a few weeks away, Treasury Secretary Scott Bessent has advised that most trade deals should be done by Labor Day (Monday, September 1st). Allowing more time for negotiations, the U.S. has come to a trade agreement with the U.K. as well and is in talks with other major trading partners, including the E.U., India, and Japan. Optimistically, May's jobs report and inflation data added fuel to the market rebound earlier in the month after coming in better than economists' expectations. Meanwhile, reports of an Israel-Iran truce were able to sustain this optimism, although it's noteworthy that President Trump has just gone on the record and said he is terminating trade talks with Canada at the time of this writing. While overly bullish market sentiment can sometimes be questioned as a conundrum, investors should know that this usually preludes to higher corporate earnings, the general principle that manifests in a higher stock market. Over the last decade, the earnings from the companies in the S&P 500 have grown by over 9% annually, with the index up a bullish +200% during this period. Image Source: Zacks Investment Research Considering the stock market needs higher EPS figures to ease the Cape ratio's overhyped reading, it's noteworthy that Zacks director Sheraz Mian has pointed out that S&P 500 earnings for the second quarter are currently expected to be up +4.9% from the same period last year on +3.9% higher revenues. However, Mian also points out that while negative revisions to Q2 estimates have stabilized in recent weeks, tariff uncertainty has caused estimates for the period to be under significant pressure relative to other recent periods. Inherently, for the bull run to continue, a relatively strong Q2 earnings season and better-than-expected corporate guidance will be crucial, with the Cape ratio at a very high 36X. This may certainly be the case with the S&P 500 already hitting a new all-time peak after rebounding +10% in just three months. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report This article originally published on Zacks Investment Research ( Zacks Investment Research
Miami Herald
a day ago
- Miami Herald
S&P 500 hits record high after $10 trillion rally
Wall Street traders dodged a flurry of tariff headlines to drive stocks to all-time highs, capping a week that saw a cooling in Middle East risks and signs the U.S. economy is holding up amid subdued inflation. A rally in Treasuries stalled. The dollar advanced. A surge in equities after April's tariff-fueled meltdown drove the S&P 500 to its first record since February, with the gauge closing above 6,170. Tech megacaps led gains, with Nvidia Corp. approaching the $4 trillion mark and Alphabet Inc. up almost 3%. President Donald Trump touted progress on trade deals with a few countries, naming agreements with China and the UK, while saying he was ending discussions with Canada. The loonie slid. Trump in April put tariffs on dozens of American trading partners on pause for three months a week after declaring them, when investors panicked over the possibility they could trigger a global recession. An over $10 trillion surge in the S&P 500 from the edge of a bear market has defied Wall Street expectations, underscoring conviction that the economy is withstanding policy uncertainty. 'U.S. equities have continued to recover from the tariff induced selloff in March and April,' said David Lefkowitz at UBS's Chief Investment Office. 'We think the recovery makes sense, considering that most large-cap companies should weather the tariffs reasonably well.' Treasury Secretary Scott Bessent signaled there may be some extensions to wrap up major pacts by Labor Day. European Commission President Ursula von der Leyen told EU leaders behind closed doors she was confident a deal could be reached before the deadline, according to people familiar with the matter. And China confirmed details of a trade framework with Washington. On the economic front, consumer sentiment rose sharply in June to a four-month high and inflation expectations improved notably. Data also showed that while the core personal consumption expenditures price index rose slightly more than expected, the pace was seen as consistent with tame price pressures that will allow the Federal Reserve to resume its rate cuts later this year. 'A window of opportunity is more likely to open at one of the final three policy meetings of the year - in September, October or December - when the impact of tariff increases on inflation becomes clearer,' said Gary Schlossberg at Wells Fargo Investment Institute. Fed Chair Jerome Powell told lawmakers this week that he expects inflation to pick up in June, July and August as tariffs become increasingly reflected in consumer prices, though he added if that prediction fails to materialize, the U.S. central bank could resume rate reductions sooner rather than later. Money markets continued to project at least two Fed cuts by the end of this year. Wagers on a third reduction could gain momentum if next Thursday's jobs report is weak. To Bret Kenwell at eToro, the latest PCE reading showed that inflation is still not spiraling out of control. However, it did snap a three-month streak of lower year-over-year readings, while last month's figures were revised higher. 'Today's inflation report shouldn't be enough to give markets a significant scare, but it probably dashes the slim hopes investors had for a July rate cut,' Kenwell said. 'Further, it may give investors a bit of hesitation with stocks surging into record high territory as we near quarter-end.' Kenwell says that stocks can do pretty well in a mild-inflationary environment. 'The key will be a reassuring earnings cycle and a strong consumer as we go into the second half of the year,' he noted. Indeed, with earnings season just weeks away, stocks will get a major test. Wall Street sees profit growth of 2.8% year-over-year for the second quarter for the benchmark, according to data compiled by Bloomberg Intelligence. That would be the smallest jump in two years. The lackluster forecasts magnify concerns from some market watchers that valuations are stretched. The risk of a speculative stock bubble is increasing as expectations of rate cuts draw massive investment flows, according to Bank of America Corp.'s Michael Hartnett. Already this year, $164 billion has flowed into U.S. equities, on course for the third-largest annual inflow in history, he said, citing data from EPFR Global. Corporate Highlights -Nike Inc. said its yearlong sales decline is starting to ease, suggesting that Chief Executive Officer Elliott Hill's strategic moves are paying off. -Apple Inc. and Google's Android have been warned by a top German privacy regulator that the Chinese AI service DeepSeek, available on their app stores, constitutes illegal content because it exposes users' data to Chinese authorities. -Two years after Nvidia Corp. made history by becoming the first chipmaker to achieve a $1 trillion market capitalization, an even more remarkable milestone is within its grasp: becoming the first company to reach $4 trillion. -JPMorgan Chase & Co. shares have soared from an April low on a grab bag of positive developments, but to Baird analysts that's too far, too fast. They downgraded the lender to underperform from a neutral rating, giving the stock its second sell rating. -Shares of Boeing Co. are set to make gains as the company speeds up production of commercial aircraft and takes steps to move on from a series of crises in recent years, according to Rothschild & Co. Redburn, which raised the recommendation on the shares to buy. -Estee Lauder Cos. was raised to buy at HSBC, which sees the cosmetics company at the end of a downgrade cycle. -B. Riley Financial Inc. has sold its financial advisory services business GlassRatner to Canadian private equity firm TorQuest Partners, adding to a series of asset sales as the financial services firm deals with its woes. -Alibaba Group Holding Ltd. unveiled a new iteration of its artificial-intelligence technology that will make it easier for users to generate and modify images from texts and visuals, as the Chinese e-commerce giant continues its aggressive push into AI. Some of the main moves in markets: Stocks -The S&P 500 rose 0.5% as of 4 p.m. New York time -The Nasdaq 100 rose 0.4% -The Dow Jones Industrial Average rose 1% -The MSCI World Index rose 0.6% -Bloomberg Magnificent 7 Total Return Index rose 1.1% -The Russell 2000 Index was little changed Currencies -The Bloomberg Dollar Spot Index rose 0.1% -The euro was little changed at $1.1709 -The British pound fell 0.1% to $1.3709 -The Japanese yen fell 0.2% to 144.72 per dollar Cryptocurrencies -Bitcoin fell 0.8% to $106,926.43 -Ether fell 1.2% to $2,416.73 Bonds -The yield on 10-year Treasuries advanced three basis points to 4.27% -Germany's 10-year yield advanced two basis points to 2.59% -Britain's 10-year yield advanced three basis points to 4.50% Commodities -West Texas Intermediate crude fell 0.1% to $65.15 a barrel -Spot gold fell 1.7% to $3,270.92 an ounce Copyright (C) 2025, Tribune Content Agency, LLC. Portions copyrighted by the respective providers.
Bloomberg
a day ago
- Bloomberg
FDIC Backs Plan on Key Bank Capital Rule Affecting Treasuries
The Federal Deposit Insurance Corp. advanced regulators' plan to ease a key capital rule that big banks have said limits their ability to act as intermediaries in the $29 trillion Treasuries market. The FDIC announced on Friday that it had backed the proposed revisions to what's known as the enhanced supplementary leverage ratio, which requires banks to hold a certain amount of capital relative to their assets.
