Bbg: $SPX Valuation Trauma Refuses to End

Bloomberg headline: Valuation Trauma Is Refusing to End for S&P 500 in Free Fall

* US high-grade bond yields closing in on stocks’ earnings yield
* Fixed-income better positioned to weather downturn: Tchir
ByKatherine Greifeld
June 10, 2022, 8:16 PM UTC

The stock market: buckling under the hottest inflation since 1981, battered by a historically aggressive bid to break it. Making matters worse is that bonds are beckoning as well.

American equities plunged to the worst week since January after data showed US price pressures hit a fresh 40-year high in May, squashing hopes inflation had peaked. Treasury yields soared to levels last seen in 2008 as traders braced for the possibility that the Federal Reserve will raise interest rates by 75 basis points next month after executing the first half-point hike since 2000.

Beyond just the real-time upheaval, one of the more tangible consequences of the central bank’s campaign has been to make fixed-income investments increasingly more attractive versus equities. One measure, a version of what’s known as the Fed model in which the S&P 500’s valuation is plotted against that of investment-grade bonds, is flashing ever-more worrisome signals for stocks

The S&P 500 sank 2.9% Friday, capping its ninth down week in 10, led by a selloff in richly valued technology shares, as consensus solidified that the Fed will have to double-down on tightening. Yields on two-year Treasuries topped 3% for the first time since 2008 as economists at Barclays Plc and Jefferies both published calls for the Fed to boost rates 75-basis points at next week’s meeting. A hike of that size hasn’t been seen since 1994.