In mid-February, when the S & P 500 pulled back after hitting an all-time high of 3950, have U. S. stocks peaked? It may be possible to get a glimpse of historical data. Mott Capital Management throws out a point:If the yield curve and the S & P 500The historical trend of the index is indeed relevant, so this time the S & P 500The index could fall by 39%..

Below, Jin Shi will explain to you how the organization promotes this point of view.

In the past 30 years,AmericatenYears and 2The curve formed by the yield spread of the 5-year Treasury bond and the S & P 500The trend obviously shows a negative correlation.The S & P 500 peaked at the bottom of the yield curve, while the S & P 500 hovered at the bottom when the yield curve was at the top.

As you can see from the chart above, it has been some time since the spread curve bottomed out, which seems to mean that the bull market in US stocks is coming to an end, or at least the stock market will usher in a period of volatility.

tenThe spread between one-year and two-year Treasuries has a fairly clear cycle: when the economy enters or approaches a recession, it tends to zero, and when the recession is over, it widens.And spreads always peak at around 2.6% to 2.8%, and bottom at around-0.5% to 0%.

The mildest adjustment for the s & p 500 took place between 1990 and 1991, during which time it briefly fell by about 20 per cent.

S & P fell the most in 2000 and 2008, as shown in the chart below, during which the yield curve steepened as two-year yields fell relative to 10-year yields, perhaps because the Fed was cutting interest rates.

In general, falling yields suggest that the economy is slowing or in recession, and the Fed has to cut short-term interest rates. When two-year yields start to rise, it shows that the economy is improving.

But this time it's different.This time the yield curve steepens not because 2-year yields are lower than 10-year yields, but because 10-year yields are higher than 2-year yields.The only thing that matters is the signal that spreads send to the market that the economy is improving and interest rates are likely to continue to rise.

Mott Capital Management believes thatIf the fed's zero interest rate policy keeps the two-year yield stable and the long-end yield continues to rise, the 10-year yield could easily rise to 2.65% in the next two years or so.

A mispriced market

The s & p 500 is currently yielding just 3.15% above the yield on 10-year Treasuries, just higher than in January and October 2018.

Which meansIf 10-year yields continue to rise and the S & P 500 does not fall, the index will be more expensive relative to 10-year Treasuries.As long as the gap between the s & p 500 and the 10-year yield increases by 35 basis points, the s & p 500 yield will fall to about 4.9%, and the price-to-earnings ratio will fall to 20.04 from the current 21.6. Assuming the S & P 500 earns $176.55 over the next 12 months, it will be valued at 3603 points, or 4.8 per cent lower than it is now, provided the 10-year yield does not continue to rise. If the yield on the 10-year Treasury note continues to rise, the S & P 500 is likely to fall further.

But if long-end interest rates are normalizing, the decline in the price-to-earnings ratio must be greater than that mentioned above.The historical average 12-month forward price-to-earnings ratio of the s & p 500 is 15.4, which means that the value of the s & p is likely to be only 2718 points, or 39% lower, similar to the decline in 2000 and 2008.

The inflection point of the S & P trend seems to have arrived.

On the technical analysisThe S & P 500 has broken its rally since March last year, which could be a very negative sign that the trend will change.

Interestingly, the 61.8% Fibonacci return in March 2020 moved up to a high of 2860 points in February.

Mott Capital Management concluded thatThe direction of the stock market will depend entirely on the bond market. To make matters worse, a correction in the stock market is inevitable for some time.