S&P 500 Forecast: Will Rising Yields Derail Stock Market's Upward Trajectory?

Fed Chair Jerome Powell reiterated his dovish stance in the face of rising inflation, reassuring the market that the central bank will keep interest rates unchanged for a long period of time before considering tapering. With that in mind, it appears that accommodative monetary policy settings are here to stay, which will likely to keep equities afloat in the medium- to long-run.

 

 

Valuation-wise, the S&P 500 (SPX) index is trading at a 31.6 price-to-earnings (P/E) ratio, which is the highest level seen in two decades and more than 50% above its five-year average of 21.2. Rich valuation may render the index vulnerable to profit-taking should rising yields continue to exert downward pressure over risk assets.

S&P 500 Index vS. P/E Ratio – 5 Years

SPX vs. P/E Ratio

Source: Bloomberg, DailyFX

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