Friday's Market Minute: Peak Rates And The Recent Selloff Are Resetting Large Cap Valuations

Equities indicate a higher open today after two days of aggressive selling as the bears took control of the short-term momentum. The bulls may be able the flip the script contingent upon stable interest rates, historical end of year seasonal trends, and the underperformance of profitable large cap companies such as Alphabet (GOOGL) that have fallen more than 10% in the past couple of trading days.

It appears Wall Street doesn't know whether they want to pay attention to actual earnings or the macroeconomic conditions surrounding it. Interest rates are likely peaking but will remain higher for longer contingent upon both above-trend economic growth and inflation.

They have made such a dramatic move in such a short period of time that equities have appropriately adjusted lower. The 10-year Treasury yield has climbed over 100 basis points in the past three months, nearing 5 percent on a closing basis, while during the same time, the S&P 500 has fallen approximately 9.5 percent and retraced nearly half of the gains from the October 2022 lows to the late July 2023 highs. 

Selloffs are always quick and dramatic, but do open opportunities in quality names that produce high earnings yields which fall in sympathy with the overall market. There are, of course, always risks that must be taken into consideration: ongoing geopolitical conflicts, elevated oil prices, or a further deterioration in long-lived asset values such as housing due to high mortgage rates or inflation heating up must not be taken lightly.

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