Below are some of the most interesting articles, quotes and charts I came across this week. Click here to subscribe to our free weekly newsletter and get this post delivered to your inbox each Saturday morning.
Continuing our theme from last week, Brian Riedl recently wrote an important piece explaining the dynamics driving a potential “debt crisis.”
NEW from me at CNN. The 10-year bond hit 4.7% today. Washington never locked in those 1-3% interest rates, and now the debt is rolling over into these rates at the same time deficits soar too.
If rates stay above 4% long-term, were in deep trouble. (1/)https://t.co/f9YMKlIBg0
— Brian Riedl 🧀 🇺🇦 (@Brian_Riedl) October 2, 2023
Investors might like to think this matters only to the bond market but the historical relationship between the two would suggest otherwise.
'Normally, a surge in real yields of this magnitude would have pushed the S&P 500's forward p/e ratio to 12 from 18 currently, Gross said. But the excitement about AI breakthroughs and rampant government spending have blunted the impact.' https://t.co/P2eHL3Z3Jj pic.twitter.com/T3HRE5RoQ3
— Jesse Felder (@jessefelder) October 4, 2023
There are more “corporate zombies” in the markets today than ever before, especially within the small cap space.
Around 1/3 of Russell 2000 companies aren't profitable–near the highest level in data going back to 1985 pic.twitter.com/A1OaGvm2YD
— Gunjan Banerji (@GunjanJS) October 2, 2023
While the broad stock market may not show it, these stocks are already beginning to price in the damaging effects of a rapidly rising cost of capital.
Russell 2000 1-month ROC < -10.00% https://t.co/s0k4Wg4Ozd by @NautilusCap pic.twitter.com/bJwgqV6C9j
— Jesse Felder (@jessefelder) October 4, 2023
And such relative weakness in the most interest-rate sensitive segments of the stock market has been an effective warning signal for the broader market in the past.
"The equity market's current resilience in the face of rising bond yields reminds me very much of events in 1987, when equity investors' bullishness was eventually squashed." –@albertedwards99 https://t.co/O0EXXKGh3O pic.twitter.com/TKHdysUDsM
— Jesse Felder (@jessefelder) October 4, 2023
Thanks for reading and have a great weekend.
