US equities demonstrate 'rational exuberance': Strategist explains
ProShares Global Investment Strategist Simeon Hyman argues that the equity market (^DJI, ^IXIC, ^GSPC) is showing "rational exuberance" in a recent discussion with Julie Hyman and Josh Lipton on Market Domination. In his analysis of the S&P 500 (^GSPC), Hyman emphasizes that the index is "less leveraged than it was 20 years ago" and that the market is "a little de-risked," demonstrating strong "underlying profitability." He explains that while the return on earnings is "only a little bit better" compared to two decades ago, the reduced leverage means that "the return on assets is 4x what they were." Addressing the bond yield market (^TYX, ^TNX, ^FVX), Hyman describes its impact on the stock market as "pretty much textbook." He points out that when Federal Reserve Chair Jerome Powell indicated inflation would settle at 2.5% rather than the central bank's 2% target, the yield curve increased by 50 basis points. This change, Hyman explains, is worth "about a turn on earnings," and with earnings trading at 25 times, that single turn translates to 4%. While Hyman considers the current 25x multiple "rational," he cautions that trading at 30x or higher would be "hard to defend" in equity markets. To watch more expert insights and analysis on the latest market action, check out more Market Domination here. This post was written by Angel Smith
