Homrich & Berg says high yields leave S&P 500 most vulnerable to earnings misses
SPY•Homrich & Berg identified earnings downside as the key near-term risk for U.S. equities as Treasury yields pressure S&P 500 valuations. Its model implied a 19x P/E, matching the forward multiple and below the 24.4x trailing P/E.
1. Valuation and earnings risks
Homrich & Berg said surging Treasury yields were compressing S&P 500 multiples and flagged earnings downside as the key near-term risk. Its model used a 4.83% 2-year yield, a 48-basis-point 10-year-minus-2-year spread, a 1.46% BAA spread and 21.4% consensus EPS growth. At current rates, 10%-15% EPS growth implies a 14.5x-16.2x multiple, while zero growth implies about 12x. Nearly 24% EPS growth over the next year could lift the P/E to 21.1x-24.8x; the model forecast was below 27.8% consensus.
