This latest raft of Big Tech earnings could help answer a key question around valuation

Stocks taking full advantage of seasonal strength, low equity exposures by big funds, a strong bid in bonds and lack of a damaging downside earnings storyline (so far) to extend the relief rally to a 10% bump off the consumer price index reaction intraday low from 12 days ago. The follow-through gains put the S & P 500 on pace to break above the short-term downtrend that's been in place since mid-August. They also place the index back inside the prevailing range from spring and summer. There is still a lot to prove to turn the broader bearish trend positive, but also plenty of room above before that even becomes the frontline battle. I was suggesting late last week and over the weekend that the action in Treasurys looked close to at least a short-term capitulation given the acceleration higher in yields and extreme volatility in fixed income. It could be playing out that way, with yields down sharply ( 10-year down from 4.23% to 4.06% today alone), though it's largely driven by a global rush into government bonds after some lousy economic data in Europe. As noted repeatedly, surging yields have been a key general source of pressure on stocks, but the relationship has loosened a bit in recent weeks: Yields continued to make new highs since mid-June, while stocks have not broken to fresh lows for more than a brief stab. Bespoke Investment Group and Leuthold Group's Jim Paulsen are among those suggesting that this could be equities looking beyond the immediate yield challenge: perhaps toward a gentler Federal Reserve, maybe feeding on rekindled hopes of a softish landing. I'd reiterate that nothing about 4% to 4.5% yields themselves are incompatible with equity valuations where they now stand. The danger comes in ongoing bond liquidation creating momentum higher in yields that reflect any combination of intractable inflation and runaway Fed tightening. Much chatter about the corporate buyback window reopening. Sure, I guess it's a modest nudge to equity demand and maybe a psychological prop. It didn't help one bit in the first-quarter earnings reporting season as stocks were rushing lower from late April through May. Longer-term, big buyback companies have not outperformed as a group, though the activity does inject new cash into brokerage accounts in aggregate. Higher yields (allowing companies to earn more on cash balances and making debt pricier) should mute new buyback activity for many from here out. Here's the Invesco BuyBack Achievers ETF versus S & P 500 over five years: The start of mega-cap tech earnings reports will help answer the question of whether the valuation adjustments have gone far enough. Multiple compression has come not just from higher yields (the price-earnings expansion that preceded it also wasn't about ever-lower yields – yields had stopped making new lows in mid-2020, 15 months before the Nasdaq peaked). Rather the digital-transformation/pandemic excitement waned just as the broad economy entered a period of strong nominal growth. This meant all companies as a group were growing revenue quickly, so there was less need to pay up for the scarce tech winners showing fast growth. Microsoft , Alphabet and Meta are projected in the 10% top-line-growth zone for the coming year. The overall S & P 500 will show that level of sales growth this quarter. Still, a lot of that premium is out of the stocks, and GOOGL for one has rarely been this inexpensive relative to the overall market. MSFT still has a rich premium. Market breadth is strong today (unlike yesterday's mixed bag), with 80% upside volume. VIX finally letting some air out, down a point, but it's been stubborn (likely due to elevated bond volatility and the looming PCE inflation number Friday and Fed meeting in eight days).