Congratulations to the CMT charterholders who were named in the 2023 Institutional Investor All-American Ranking for Technical Analysis. Three of the top four spots went to CMT chartherholders

They have achieved notable recognition within the industry for their exceptional contributions and achievements. The recognition is a testament to their dedication to excellence in the use of Technical Analysis to add value for their clients.

We are immensely proud of them for their remarkable achievements. Their dedication to pushing the boundaries in our industry and their commitment to delivering outstanding results have not only earned them this prestigious recognition but have also contributed significantly to the application of Technical Analysis in security selection and portfolio management.

We also extend our congratulations to the following CMT charterholders who also received II votes and recognition in Technical Analysis:

Their contributions extend beyond their individual accomplishments; they embody the collaborative spirit and commitment to excellence that defines CMT Association and the CMT charter.

Alvin Kressler

CEO, CMT Association

Over the past month the 10-year US Treasury yield has rallied to a high of more than 4.8%. 

These are the highest levels seen since 2007 and are creating what looks like a potential long term

headwind for the S&P 500 and US equity returns.  Simply put, bond yields have a major impact on the cost of capital in valuing equities.

As bond yields push higher, the future cash flows for equities will continue to get discounted at higher rates.
In addition, US Treasuries yielding 5% provide an enticing risk free alternative to equities.

Overtime, in the current “higher for longer” environment, equity valuations will compress and prices will fall.

For a visual on the current relationship between the 10-year yield and the S&P 500 I have pulled the chart below (Chart A).

As you can see, in September of 1981 yields were peaking at close to 16% and equity markets were flat.

As yields began to fade and enter a Secular Bear Market, the S&P 500 (acting inversely) entered a multi-decade Secular Bull Market.
In December of 2021 the S&P 500 peaked with the 10-year at ~1.50%.

The absolute spread at that point between the S&P500 and the 10-year yield hit a high of  4766. 

This spread is currently ~4250 representing a level that is still over 3 standard deviations from the mean for the time period 1962 through today.

Clearly, even with the recent massive surge in yield, there is a need for additional reversion to bring this spread back inline.  

Chart A

Source: Bloomberg

The question is how does that happen?  What does that look like?

In a real effort to simplify that answer I have pulled the two charts below.

Ignore all the rhetoric.  Just for a moment forget Mr. Powell, Spreads, Economic Releases, Forward P/E Ratios, Dot Plots, Geopolitics, etc.

Chart B below shows the 10-Year Yield from 1970 through today.

This includes a massive Secular Bear Market which extended from 1981 through 2020.

That downtrend line has been broken, yields have hit their lows and a new Bull Market has begun.

I am marking the upside target for yields at 6.4% based on a Fibonacci Retracement for the entire peak-to-trough move highlighted below.

Chart B

Source: Bloomberg

Chart C below shows the S&P 500 from 1970 through today.

This includes a massive Secular Bull Market which extended from 1980 through 2021.

That uptrend line has yet to be tested or broken, leaving real room for a significant move to the downside.

I am marking the downside target for the S&P 500 at 3000 based on a Fibonacci Retracement for the entire trough-to-peak move highlighted below.

Chart C

Source: Bloomberg

In conclusion, markets in general are volatile and misaligned.  We function in a continuous state of information overload.

Simple, objective Technical Analysis eliminates the noise which is more often than not just that, noise.

There is ~35% upside in US 10-Year Yields (target 6.40%) which I believe will coincide with a ~30% move to the downside in the S&P 500 (target 3000).