Thread by @michaelsantoli

After a nasty gale tore through the bond market, sending yields flying and upending portfolios, time to look for valuable windfall?
The upshot for equity valuation, the fate of FANG, prospects for dividend-growth and buyback stocks.

New @CNBCPro column.

cnb.cx/2O5OyWi

Not a key impact, but the boost in yields creates a slightly awkward rhetorical challenge to Wall Streeters who lean heavily on relative stock/bond valuation stories to make a bullish equity case. The “Sure, P/Es are rich but the earnings yield’s well above the 10-yr Treasury...”

In reality, there was never anything essential or eternal about the “equity risk premium” or “Fed model” - certainly not as a predictive tool. Absolute valuation has been the key driver of long-term returns (with no forecasting power in the near term).

And the ERP has had major regime shifts. Through the ‘90s/much of the ‘80s, earnings yields were lower than Treasury yields. After 2000 almost always the reverse.

Good news now: S&P absolute forward P/E has been static for 9 months as S&P gained 25%. Forward EPS up that much.

And dare we consider that ERP could perhaps become yet another thing that goes back into its ‘90s range? So far it’s happened with overall equity valuation (highest since 2000), sustained low put/call ratios (black in the late-‘90s range) and public participation in stocks.

Not a prediction at all. But need to be alert for the chance that what seemed like “rules” for the past decade or so were just circumstance and observation.

It would be bullish for a bit, even if it didn’t prove the best long-term entry point for equities back then.