Chase UST, not SPX says Citi analyst By Investing.com

By Sam Boughedda 

In a be aware to purchasers on Friday, Citi analysts instructed traders they need to be chasing UST, not .

The analysts defined that the rally in danger belongings might proceed no less than till the mid-December central financial institution conferences.

“Median bear market squeezes are ~18% from trough to peak, which if realized this time round would carry the SPX to 4150. Moreover, all through this yr, the 12m fwd PE has failed to interrupt above its 1y MA. There was an identical prevalence in 1994 when the Fed quickly tightened. The 1y MA of the 12m fwd PE is available in at ~18x, which on present EPS estimate of $230, would infer an index degree ~4140. From a worth perspective, this might be beneath the summer season excessive ~4330, so for Dow-theorists, a decrease excessive in index degree retains the bear-market intact,” wrote the analysts.

Regardless of the latest rally, Citi is retaining its base case of a tough touchdown subsequent yr, whereas the agency feels chasing bond yields is a greater possibility in comparison with equities.

“The hole between earnings yields and bond yields (EYG) is now tiny. The chance-reward of chasing equities (relative to chasing bonds) simply does not stack up, particularly should you assume a recession is on the way in which. We present this by bucketing the EYG and taking a look at SPX and UST ahead returns. The latter screens as a purchase. We purchased USTs final week and nonetheless just like the commerce,” the analysts concluded.