In a recent note to clients, George Vasic, strategist at UBS, suggested that Canadian and U.S. earnings yields — the inverse of the price-to-earnings ratio — imply that stocks are still reasonably priced next to corporate bond yields.
This, along with low balance-sheet debt, means that mergers and acquisitions activity should continue to hum along and support stock prices.
As well, Mr. Vasic noted that the S&P 500 usually has just a small pullback after long bull-market runs – and even then the index is often higher three months after the hiccup.
“Investors have more to lose being out of the market waiting for the inevitable decline, as history shows these extended runs end with a small correction, and then are followed by positive returns,” Mr. Vasic said.
Add in the view that incoming economic data should point to a soft economic landing in the United States, followed by renewed expectations of a rate cut by the U.S. Federal Reserve, investors have good reason to remain optimistic.
SPX 5-yr chart: