The Tradeoff Between a 4.8% Equity Yield and a 5.4% T-Bill Yield

Highlights

• Investors turn to today’s CPI report — keep an eye on insurance premiums

• Concentration and valuations are the main equity market risks

• Leading indicators signal no pick-up in momentum

• Non-cyclical sectors drove more than half of the job gains since January 2023

What We Are Doing To Deliver An Even Better Service For You!

You may have noticed that I mentioned last week that the “perpetual” EPS growth being discounted in the current valuation of the S&P 500 is +6.4%, and that compares to the historical norm of +1.5%. So, as the market continues to push higher on sentiment, expectations, and speculation, the more it deviates from underlying fundamentals. This by no means suggests that the S&P 500 cannot reach new heights (as it already has), but it does suggest that investors are overpaying heavily for future earnings streams. This is not just a “Rosie Opinion” drawn out of thin air; it is the product of intensive statistical research we have conducted.

With that in mind, I want to showcase one of the most recent additions to the RR team, Bhawana Chhabra, who was the lead equity strategist for many years at an investment bank in Mumbai, India, and joined us last Fall. Bhawana is our equity sector specialist and the primary author of our latest publication titled What’s Priced In? which should have found its way to our Premium clients back on Monday, January 29th. She has been a terrific addition to our team, and any client who subscribes to the Premium package should know that you can set up a call with her at any time to discuss her methodology and her thoughts on sector rotation (a value-add complement to our monthly Strategizer asset mix publication). Just contact our client service team at information@rosenbergresearch.com and a representative will set up a call with her, either by phone or video call.

I’ve also bulked up on young talent, hiring two data-oriented economists late last year, Paul Kim and Nwal Anwar, as I continue to invest in the firm’s success. Paul and Nwal have first-rate data science and coding toolkits to complement their foundational economics training, and are focusing on developing our internal models to help refine and improve our forecasting and analytical capabilities. One small example of this, is in yesterday’s Breakfast With Dave which includes an analysis of what statistically augmented recession-probability models are signaling. I wish I had that work on hand this time last year when the odds the model spits out were pegged at 11%. Today, those odds have risen to 85%, so we are not abandoning our call, but acknowledge that we were too early. We’re always striving to get better at what we do!

Finally, last fall I also hired Dylan Smith, formerly of Goldman Sachs London, where he helped spearhead the EMEA economics function at the firm and was the right-hand “macro man” for Huw Pill… who is now the Chief Economist at the Bank of England and told me last summer to nab Dylan as soon as I possibly could. So, I did. Dylan is heading up our macro research division and his principal job is to keep me out of trouble! His economic knowledge and expertise in all things “global macro” is as good as I have seen in my near-40 years in the business.

These recent hires complement the skills and experience of the more tenured members of our research team — Marius Jongstra on financial strategy and Atakan Bakiskan on macroeconomics.