Profit Illusions

摘要

The spotlight is on corporate earnings. they've got to be robust to substantiate the bulls' enthusiasm for stocks. The recent jump in bond yields, anticipating a Federal Reserve tightening and renewed inflation, makes you wonder how robust earnings will be ― and how high stock prices can stay. In fact, at 22 times the last 12 months' earnings, the S&P 500 is already unsustainably high. Furthermore, the average dividend yield (now 1.7%) is far too low to provide meaningful support for equities. Unlike some of Wall Street's bears, I don't predicate my disdain for stocks on an inflation threat. I continue to forecast mild deflation in future years, with 30-year Treasury bonds yielding 3% compared with 5.4% today. My case against stocks rests, in contrast, on the weak outlook for corporate profits.