Following my last two articles:
https://talkmarkets.com/article/rates-still-rising-ddv-falling-djia-extremely-expensive-1787543396
https://talkmarkets.com/article/impact-of-higher-30-year-t-bond-yields-on-ddv-1787599689
The DJIA peaked at 54,349 in early August and is now at 52.064. Its DDV has also declined from a peak of 33,986 to 33,048 as the yield on the 30-year T-bond has risen from 5.25% to 5.37%. As a result of the 4.2% drop in the DJIA price and the 2.8% decline in its DDV, the premium of the DJIA over its DDV has fallen 7.4% to 19,016. A move in the right direction, but the market remains extremely expensive.
A further narrowing of the gap between price and value should be expected with the DJIA falling as the quicksand supporting it gives way. To return to Terra Firma, the DJIA needs to correct by 37%, which may happen by year-end.
Despite Mr. Bessent’s vainglorious attempt to control US long bond rates with his upsized buyback strategy, the 30-year T-bond yield continues to rise in defiance, above 5.7%. This seems to confirm that the primary trend in long-term rates is up, as it has been since March 9, 2020.
Furthermore, as the 30-year T-bond yield is above 4.5%, it is pushing the DDV down at a much faster rate than the dividend of the DJIA can rise and push the DDV up.
The following Table shows how the DDV changes based on different 30-year T-bond yields and the resulting premium of the DJIA to its value.
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