Yes, that’s what I meant (however sophisticated or unsophisticated my utterance was): if the earnings yield of a stock (or index) is defined in its simplest form as EPS/Price, and it is for example at 5.00% (corresponding to a PE of 20) then a long-term nominal bond yield of 3.50% gives an earnings yield spread of 5.00% - 3.50% = 150bp.
If the bond yield goes up to 4.00% (for argument’s sake), then everything else being the same the earnings yield spread shrinks to 100bp, which is not as good a reward for the equity risk carried. So, either EPS goes up with bond yields, enough to offset the impact of higher interest rates, or the stock price has to go down.
But then you have the subtle distinction of how each individual company revenues (and earnings) react to inflation dynamics, which are inextricably linked to any sustained increase in bond yields, hence the peculiar behaviour of infrastructure stocks within the broader equity market.
TCL Price at posting:
$11.93 Sentiment: Buy Disclosure: Held
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