Wey How
Thematic Position Trader, Technology Stocks & Trend Following
US stocks can keep rising even as yields climb, because corporate earnings growth far outpaces inflation. In 1994, bond yields rose 263 basis points while earnings grew 18%; the S&P 500 went flat, then 1995 brought one of the greatest bull runs ever. Today rates are up 100 basis points against 32% earnings growth, and real GDP growth could reach 7%. Earnings and inflation drive stocks and bonds, not the other way around. x.com
US large-cap equities face mechanical selling as the yen carry trade unwinds. Cross-border yen borrowing hit a record, estimated at $500 billion to $2.35 trillion, and is now unwinding ahead of yen appreciation and an expected BoJ hike of at least 0.25% in September. Unwinding traders sell US bonds and stocks regardless of fundamentals, and BoJ Treasury sales may explain part of the yield spike. How long the selling lasts is unclear, so risk management is non-negotiable. x.com
US stocks benefit when rates rise with growth because earnings outpace the drag from higher discount rates. Such periods have historically been very bullish, unlike inflation-led rate rises amid slowing growth. Since fall 2025 the 10-year yield rose from 4.1% to 5.1% while nominal GDP growth accelerated to 6.6%, faster than rates. Being long offers better risk/reward; high oil prices due to the war are the remaining inflation pressure, and an end to the war would improve the setup further. x.com
Broader participation, earnings growth and lower multiples support US equities into year-end, with seasonality also favorable. The equal-weight S&P rose 1.95% this week while the cap-weighted index slipped 0.05%; EPS is up 38% so far and multiples are down 17% year to date. The 10-year yield fell 41 basis points. x.com
US large-cap equities are vulnerable because earnings have not caught up with total market capitalization. The market is farther from its 200-week moving average than at any point in 18 years, and cracks are starting to show; staying bullish ignores these risks. Rate hikes remain possible, oil is still high, and yields may climb again, so now is the time for caution. x.com x.com
Improving breadth and GPUs massively outrunning depreciation costs put US-equity risk/reward heavily in bulls' favour. Some 59% of S&P 500 stocks are above their 50-day average; the Nasdaq 100 is positive over five trading days, and small caps bounced off their 200-day average. Buy gradually, as the selloff may not be completely over. x.com
S&P 500 earnings are keeping pace with prices, so this does not look like a bubble. Quarterly earnings are on track to grow 29.5%, more than twice the 10-year average of 12.6%, while the 18.7 forward P/E is just below its 19.1 decade average. x.com
US equities look vulnerable to a significant correction before another sustainable rally: 3.4% inflation, roughly $100 Brent, a 5.2% 10-year yield and just 29K new September jobs contrast with fresh index highs, while the Magnificent 7 make up 34.9% of the S&P 500. Strong AI earnings expectations and liquidity could keep shares elevated longer than expected. x.com
The S&P 500 has convexity if earnings keep growing while the 10-year yield eventually falls from 5.3% back toward 4-4.5%. The index is near record highs yet getting cheaper relative to expected growth, because earnings are rising faster than prices. Treasury yields above 5% have compressed the multiples investors pay for future growth, while the AI capex cycle expands the earnings base; those two enormous forces are pushing against each other. x.com
Post-midterm market strength calls for patience with US large-cap equities. KHerriage's quoted post cites an average S&P 500 gain of 29.9% over the next 15 months in post-midterm periods since 1950, with gains in 19 of 19 years. x.com
The 10-year yield above 5% limits how far the US equity rally can stretch, even as stocks shrugged off the Fed hold. Two policymakers wanted a hike, the 10-year rose to about 5.04%, and bonds sold while all four major indices closed higher. Rates need to cool for the rally to extend. x.com
Rising S&P earnings revisions and a Nasdaq valuation far below the 2000 bubble level argue against a bull trap in US large caps. Nasdaq trades at 18x forward earnings versus over 80x in 2000. Positive breadth divergences, record short ETF exposure and put volume, and semiconductors waking up add to the case. In all 19 post-midterm instances cited, markets were very green over the following 12 months. x.com x.com
