The weaker small caps might also break higher, especially if rates ease down.
We can see below that rates have reached the levels that were commonly seen before the March 2020 Covid related dump.
We can also see below that the rate pull back of the past days has attracted money back into equities. This probably means that the markets are not expecting rates to push higher in the coming weeks - otherwise they would not be buying here.
Below is an interesting article regarding the interest rates evolution for the next years.
https://themarket.ch/interview/chen-...bubble-ld.4090
Below is a Table that shows how earnings have evolved. In Yellow, we can see that based on about 25% of earnings announcement, the last four quarters finishing at the end of March display earnings per shares that increased to 122.64$ from 117$. Using that Figure, we can see below that the current S&P500 price is below the calculated Yield model fair price.
We can see below that the AAA/10YT Yields differential has been bouncing back up in the past days.
If we assume that this differential can bounce back to about 1.5% by June 30 and using the June 30 expected earnings of $144, we can see that the fair market price would be about $4700, which justifies the opinion of the above article that states that a huge speculative bubble is still coming. But...
if as stated in the article, the 10Y rates push back up to the 2% level, then the current price looks fair (see Pink Arrow on the above Figure)
Conclusions:
Looking two years ahead is rather speculative and stating that after witnessing the S&P500 doubling in price since March 2020, we might doubt that there is a big assets bubble just waiting in front of us.
But the interview in the above article makes sense, especially if the Fed stays dovish for a long time.
The most interesting aspect of that article was the indication that US consumers spared 2T$ more than what has been injected in the economy. This is a really big hot cash potato. With the US$/Euro weakening by the day, this is just what might be needed to fuel cryptos and equities to an epic bubble. Inflation would go to the roof and the Fed will have no way to control the snake back in the bottle.
