Please note as of December 19, our commentaries are now published on Seeking Alpha. Below is summary and excerpt – to read more please follow the link.
Summary
- Despite levitating at record highs, SPY has more upside potential heading into 2017 based on the differential between prevailing dividend yield vs. 10yr real interest rates.
- Trailing SPY dividend yield (2%) is currently +1.3% higher than 10yr real Treasury Yield (0.7%), which is wide comparing to richest level post-crisis at +0.3% in 2010.
- Statistical analysis suggests staying long SPY until the differential gets under +0.6%.
- 10y Treasury yield remains capped under LT downtrend, while SPY dividend growth remains solidly in uptrend, both providing a favorable environment for bull market in SPY to continue.
Without further ado, we want to visit probably one of the hottest topics heading into 2017- whether the U.S. equity markets are a Buy or Sell here. Without a doubt, the U.S. stock markets broadly have had a stellar year thus far, with S&P 500 and Dow up 10% and 14% respectively and both making new record highs. The biggest question is whether there is further leg into this “Trump Rally”, considering the political uncertainty as well as a more hawkish Fed.
We will approach this question from the perspective of S&P 500’s relative value vs. bonds, using SPY’s dividend yield and 10yr real Treasury yield as the benchmark..
