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Risk-On / Conditional Equity
Signal:
Growth Signal
Description:
Fourth priority - when EYP is negative but yield curve is positive
Action:
Liquidity supports duration → High-growth equities
Priority:
6 of 8
Trigger Condition
Real 10Y ≥ 0% (no System Stress)
AND Real EY ≥ 0% (equities not broken)
AND EYP < -1% (equity carry inferior to bonds)
EYP < -1% AND Yield Curve > 0%
Key Insight
A positive yield curve indicates healthy liquidity transmission. Even though current equity earnings are expensive, the ability to finance duration means growth assets can be carried until their future cash flows materialize.
Historical Chart
What This Means
- •Equity cash-flow carry is inferior to bonds
- •But liquidity transmission is healthy
- •Duration can be financed and carried
- •Growth compensates for weak near-term earnings
Recommended Action
Growth Equities
High-growth / long-duration equities
- •Positive yield curve enables financing
- •Duration assets can be carried
- •Growth premium compensates for weak carry
Important: This is NOT a bond-favored signal despite negative EYP. The positive yield curve changes the calculus entirely.
Historical Examples
- • 1994-1999 (tech boom with positive curve)
- • 2017-2018 (FAANG dominance)