Last week was strong for the S&P 500, reflecting an increase in inflation expectations, as revealed in the 5 year breakeven rate. Signals sent by the Fed last week seemed to have caused markets to expect a little more tolerance for inflation going forward. Hopefully, we’ll also see further increases in real GDP growth expectations soon.
Looking ahead, there continues to be reasons to be more optimistic than the S&P 500 futures market, and expect the earnings yield to continue to rise. Forward estimates continue to hover around 4.5%, which would be an increase the trailing earnings yield which is close to 3.2%. If this forward P/E estimate is correct, the S&P 500 will be at the 5813 level by the end of 2022, representing an almost 29% increase. As stated last week, the index will be at about 5300 by next May if it continues to rise at the present pace.
I say again, I’m not just going to buy the dips. I’m just going to buy.
PS: I apologize for getting this out almost 4 hours late today, but the delay was unavoidable.
Note: The above should not be construed as investment advice, as such advice should be rendered by a professional financial advisor who can take your individual circumstances into account before making recommendations.