The Case For SPY, Gains 40 Percent

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In his Daily Market Notes report to investors, while commenting on the SPY, Louis Navellier wrote:

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The Case For SPY

The 10-year Treasury bond yield closed 2021 at only 1.52%, so yield-hungry investors are expected to continue to flock to the stock market for higher yields and potential growth. Some say the stock market trades at a “lofty” P/E ratio, but I beg to differ. Based on a dividend discount model, a fair valuation for the S&P 500 could be about 66x earnings (“1” divided by 0.0152), an inversion of the P/E ratio.

Naturally, many investors expect bond yields to rise, which is why they are always expecting a correction. For example, if the 10-year Treasury bond yield were 2%, then a fair P/E ratio for the S&P 500 would be 50 – or if the Treasury bond yield were 3%, then a fair P/E ratio for the S&P 500 would be 33.3. (We should also add a premium or a discount if the S&P 500’s earnings are accelerating or decelerating.)

With the fed tapering its QE, inflation is expected to cool in late 2022. Along with a strong U.S. dollar and persistent international buying pressure for U.S. Treasury securities, I can make a case for the SPDR S&P 500 ETF Trust (NYMARKET:SPY) to gain 40% in 2022. This could happen if investors believe bond yields will not rise much in 2022.

We do have a rotation underway. What's going on is last week, the ten-year treasury closed at 1.51% and today, 1.66%. So that pretty dramatic rise in the ten-year treasury yield caused some profit taking in some dividend growth stocks yesterday, but they should be fine and they're firming up today.

Techs And Interest Rates

The other thing is, a lot of tech stocks are selling off in the wake of higher interest rates. There’s a fallacy that higher interest rates will hurt tech stocks.

That's not true at all, because tech stocks are part of the productivity miracle that's happening around the globe. So this is just a normal rotation and money isn't leaving the market. Now, the irony is, of course, the tech stocks, especially the semiconductors, will have the strongest earnings announced in the upcoming weeks. So don't let Wall Street shake you out.

The other comment I have about the market is we are right around the corner from earnings. The earnings will start to really roll out in the third week of January and continue throughout February 10, and they should be spectacular.

SPX After Hours

One last thing I want to mention. Our friends at Bespoke documented that SPY, which is the S&P 500 ETF, was up only  9.6% last year during market hours. On the other hand, it moved 16% after market hours. So most of the market movements aren't even during market hours. So the trading day volatility is not as important, and useful as the total volatility that occurs during on and off-hours.

Coffee Beans

A newborn California twins have different birthdays -- and different birth years. Little Alfredo Trujillo was born at 11:45 p.m. on Dec. 31, 2021, at the Natividad Medical Center in Salinas, California. His twin sister Aylin was born several minutes later, at the stroke of midnight on Jan. 1, 2022. The odds of twins being born on different days in different years is about one in 2 million. Source: UPI. See the full story here.