Tuesday, November 15, 2016

What Stocks Need To Go Up

*This may be overly simplistic but after the bond rout stocks need earnings to go up.
*Earnings have been dismal at best so economic hype needs to seep down to the company level.
*The earnings yield story is less attractive after the bond rout so either earnings go up or stocks go down.
*Q3 actually had the first up earnings quarter since Q1 2015 so maybe just maybe stocks can pull it off.

Over the last few years equities have not shown strong earnings. Even still stocks have managed to hold up and even go up. Relative to historic low bond yields stocks were still attractive. Now that bonds dropped and yields jumped companies have to start earning. Without it stocks have risk ahead. Let's review what to watch.

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The blue line shows earnings yield. The green line shows 10 year yields. The red line shows the distance shrinking.

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