過去幾年股價上升得益於估值(valuation ratios)上升和盈利增長。今後幾年， 政府債利率會上升，公司估值(valuation ratios)會下降。今後幾年股價能不能上升要看盈利增長會不會抵消估值(valuation ratios)下降。
今後幾年，政府債利率會上升， 因為一方麵新稅法估計會增大美國政府赤字1.5萬億，而另一方麵FED要縮表要減少政府債劵，Apple等公司要賣所持有的債劵（含政府債劵）to take advantage of the 15.5% repatriation tax rate, 中日等國可能沒有更多的錢來買美國政府債劵， 這些都是萬億級別的大象。當然，考慮到美國巨大的債務，FED也不會讓利率高得太離譜。
政府債利率上升的一個後果是公司估值(valuation ratios)會下降，除非
1）Apple那種賣政府債劵回購股票的公司；
2）那些加速增長的公司；
3）那些市場及技術領先會被巨頭收購的公司。
The following is my English writing:
This correction started on Jan. 29, 2018 as worries about inflation and increase in treasury yield were building, with the first sizable 666 points drop of the DJ happened on Friday Feb.2 when slightly higher wage growth of 2.9% yoy was reported, and 10Y treasury yield spiked up to 2.852% that day. This was followed by over 1000 points drop of the DJ on the following Monday and Wednesday. Overall about 10% retreat occurred for major stock indexes over the last 10 trading days (from Jan. 26 high to last Friday’s intraday low). The SP500 Friday bar showed a high touching 100 DMA and a low touching 200 DMA.
Over the same time period, gold price down 2.6%, dollar index increased 1.5% from 89.067 (Jan. 26) to 90.442 (Feb. 9), and treasury yields were up slightly (5Y yield up from 2.47 to 2.52, 10Y yield up from 2.662 to 2.857, 30Y yield up from 2.91 to 3.14). A typical flight to safety would see treasury and gold buying and would have driven gold price up and treasury prices up and yield down. So in a sense this equity selloff does not seem to indicate a typical flight to safety.
The Friday Feb.2 big drop happened just after Feb. 1 reports of big cap names AAPL/AMZN/GOOGL, as many investors were hoping equity to set new highs on Feb. 2 on good reports and guidance. So the drop Friday was a surprise to many people. In fact, FB and AMZN stocks were up after report and APPL stock was up after conference call.
In other words, By Feb. 2, investors had a better idea about effects of recent US tax reform, including 2018 effective tax rate guidance and the repatriation plan of foreign profits. Worry about US Treasury is becoming more real: Fiscal deficits over the next 8 years are likely to increase by 1.5T dollar so US government will likely need more money. Since most of the so-called “foreign profits” are already in US but were kept (invested) in US Treasury and other corporate debts for accounting purpose, big names like Apple will sell their Treasury and debt holdings to repatriate “foreign profits” to take the benefit of the new 15.5% rate over next 8 years. Note that this selling of Treasury will be on top of Fed’s reduction of its balance sheet which started gently late last year. Thus it is natural for investors to require higher Treasury yields in anticipation of more demands from government and exits of Fed/Apple-like big Treasury holders. With trade policy of current administration, US could have less trade deficits, and as such, one will likely see less Treasury buying from foreign powers like China and Japan.
If this line of reasoning is correct, we are expecting Treasury yields to increase going forward driven by increase in government demands, selling by Fed/Apple-like holders, and less buying by foreign countries. In other words, Treasury yields will need to be high enough to attract other buyers including those who sold stocks. But on the other hand, the FED could not let the Treasury rate spike too high to burden US too much as US debt will likely increase to over $25T over the next 10 years.
If this line of reasoning is correct, stock valuation ratios will be lower because of higher treasury yields, except maybe 1) Apple-like companies who sell Treasuries and buy-back company shares, 2) companies that will experience accelerated growth where valuation ratios could remain or even expand if the growth acceleration is big, and 3) market/tech leaders that will be acquired by other big companies.
Stock price appreciation in the last few years is due to the combined effects of increase in valuation ratios and earnings growth. Over next few years, stock price will increase only when growth can outweigh decrease in valuation ratios.
