Bloomberg Intelligence's 'Equity Market Minute' 1/13/2023

Gina Martin Adams discusses the bond market's growing comfort with the idea of the Fed pausing or pivoting its monetary policy in 2023. She highlights the significance of the two-year Treasury yield crossing under the Fed funds rate, a reliable indicator of changes in monetary policy. However, she notes that stock valuations suggest the market may already be anticipating these changes. The S&P 500 is trading above its typical forward earnings ratio, implying expectations of a CPI decrease. Given this context, a moderate Fed policy shift may not significantly boost equities.

What is the implication of the S&P 500 trading above 17 times forward earnings?

What challenges are presented regarding the effectiveness of a moderate shift in Fed policy on equities?