PAI - Hedging U.S. Equities With Treasury Options
By Erik Norland
U.S. equities may be in the late stages of a bull market. In their early stages (1991-1996, 2003-2005 and 2009-2014), earnings and equity prices rise in tandem. In the late stages (1997-2000, 2006-2007 and 2015-), earnings stagnate or decline while prices continue to advance anyway (Figure 1). For the moment, earnings remain relatively robust but are not growing any faster than GDP.
At some point, with rising interest rates, a tightening labor market and a trade war, earnings may begin to decline outright as they did during the late 1990s and in