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ICYMI: S&P 500 Could Surge Another 12%, Says Stock Market Bull

Video Credit: The Street - Duration: 01:59s - Published < > Embed
ICYMI: S&P 500 Could Surge Another 12%, Says Stock Market Bull

ICYMI: S&P 500 Could Surge Another 12%, Says Stock Market Bull

It's almost hump day.

But it was a good day for stocks, as all three major U.S. indices ended higher Tuesday.

While some on Wall Street have been growing cautious on U.S. stocks, which have surged to start 2019, there's still a technical argument to be made for further gains.

Can the S&P 500 Pump Even Higher?

"Stocks may keep going higher," wrote LPL Financial's Chief Investment Officer John Lynch, adding that "stock valuations, when compared with bond yields, are actually historically cheap." Lynch noted that the current equity risk premium (ERP) on the S&P 500 is 3% against the 10 year treasury yield, which is currently at 2.63%.

That risk premium of 3% is far above the average ERP of 0.5% for the past six decades, Lynch noted.

Before we get into what this means for stock gains, let's go over this: What is the Equity Risk Premium?

The ERP is the difference between the expected average earnings yield on a stock for the next 12 months, usually for the S&P 500 for the U.S. market, and the yield on the 10 treasury bond.

It's a measure of how much excess return an investor is getting for taking the risk of owning a stock instead of a safe treasury bond.

Case in point: Lynch wrote that, since 1960, when the ERP for the S&P 500 is above 3%, the index sees gains of 12.4% for the next 12 months on average.

SunTrust Merger?

Federal Reserve Chairman Jerome Powell said U.S. regulators will conduct a "thorough" review of BB&T proposed acquisition of banking rival SunTrust after Democratic Sen.

Elizabeth Warren described the process in a Washington hearing as a "rubber stamp, wrote TheStreet's Bradley Keoun.

Aurora Cannabis Buys in Portugal Aurora Cannabis announced the acquisition of a 51% ownership stake in Portugal's Gaia Pharm Tuesday as the company looks to establish a local facility to produce medical cannabis and related products as it widens its presence in Europe, wrote TheStreet's Tony Owusu.

Related.

RealMoney's Peter Tchir writes how to game plan ahead of the March 1 trade truce deadline.

Home Depot , RealMoney's stock of the day, missed earnings expectations, but could still be a good bet says RealMoney's James Deporre.

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