Market now anticipating 1.7 rate cuts in Sept and Oct, and 2.5 rate cuts by year-end. We expect a 50bp cut in Sept, which could trigger more equity gains, despite the S&P already ahead by +10% YTD. At 6,455, the S&P 500 is now trading at 23.5x forward 4-qtr rolling earnings of $275. The implied S&P 500 E/P yield is now 4.26% (1/23.5x) or +3bp vs the 10yrTY of 4.23%. The normal S&P earnings yield spread over 10yrTY over the past 60 years has been +100bp. Market clearly expecting 10yrTY to fall as short term rates come down.
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