Fed's Stock Valuation Model Monthly/Weekly

Stock Market Briefing: Fed's Stock Valuation Model

Monthly/Weekly

Yardeni Research, Inc.

October 4, 2021

Dr. Edward Yardeni

516-972-7683 eyardeni@

Joe Abbott

732-497-5306 jabbott@

Mali Quintana

480-664-1333 aquintana@

Please visit our sites at blog.

thinking outside the box

Table Of Contents Table Of Contents

Fed's Stock Valuation Model

1-5

October 4, 2021 / Fed's Stock Valuation Model Monthly/Weekly

Yardeni Research, Inc.



Fed's Stock Valuation Model

Figure 1.

18

17

S&P 500 FORWARD EARNINGS YIELD & NOMINAL 10-YEAR TREASURY BOND YIELD

16

15

14

S&P 500 Forward Earnings Yield* (4.94)

13

10-Year US Treasury

12

Bond Yield** (1.51)

11

10

9

8

7

Mar

6

5

4

3

2

1

0

79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19

* Year-ahead forward consensus expected earnings divided by S&P 500 stock price index. Monthly through March 1994, then weekly. ** Monthly through March 1994, then weekly.

Source: I/B/E/S data by Refinitiv and Federal Reserve Board.

18 17 16 15 14 13 12 11 10 9 8 7 6 10/1 5 4 3 2 10/1 1 0 21 23

Figure 2.

100

100

STOCKS vs. BONDS VALUATION MODEL (using 10-year Treasury bond yield)*

(percent overvalued or undervalued)

50

50

overvalued

0

undervalued

0

-50

-50

10/1



-100

-100

79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23

* S&P 500 stock price index divided by S&P 500 fair-value price defined as S&P 500 12-month forward consensus expected earnings divided by 10-year US Treasury bond yield converted to percentage. Monthly through April 1994, weekly after. Source: I/B/E/S data by Refinitiv and Federal Reserve Board.

Page 1 / October 4, 2021 / Fed's Stock Valuation Model Monthly/Weekly

Yardeni Research, Inc.



Fed's Stock Valuation Model

Figure 3.

195

S&P 500 FORWARD P/E & RECIPROCAL OF BOND YIELD

185 175 165 155

145

135

125

115

Bond's P/E* (66.2)

105

S&P 500 Forward P/E** (20.3)

95

85

75

65 55 45 35

25

15

5 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17

* Reciprocal of 10-year US Treasury bond yield. ** 52-week forward consensus expected S&P 500 operating earnings per share. Monthly through March 1994, weekly thereafter.

Source: Standard & Poor's and I/B/E/S data by Refinitiv.

195 185 175 165 155 145 135 125 115 105 95 85 75 10/1 65 55 45 35 25 10/1 15 5 19 21 23

28425 24375 20325 16275

12225

Figure 4.

STOCK VALUATION MODEL (using 10-year Treasury bond yield) (ratio scale)

8175

S&P 500 Stock Price Index*

4125

S&P 500 Fair-Value Price**

28425 24375 20325 16275 10/1 12225

8175

10/1

4125



75

75

79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 25

* Monthly through April 1994, weekly after. ** Year-ahead forward consensus expected earnings divided by 10-year US Treasury bond yield. Monthly through April 1994, weekly after.

Source: I/B/E/S data by Refinitiv, Standard & Poor's, and Federal Reserve Board.

Page 2 / October 4, 2021 / Fed's Stock Valuation Model Monthly/Weekly

Yardeni Research, Inc.



Fed's Stock Valuation Model

Figure 5.

14.2

14.2

CORPORATE BOND YIELDS*

13.2 (percent)

13.2

12.2

12.2

11.2

Aaa Corporate Bond Yield (2.6)

11.2

Baa Corporate Bond Yield (3.3)

10.2

Average of Aaa and Baa (3.0)

10.2

9.2

9.2

8.2

8.2

7.2

7.2

6.2

6.2

5.2

5.2

4.2

4.2

3.2

10/1

3.2

2.2

2.2



1.2

1.2

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

* Moody's Aaa and Baa yields through 2005, then BoA Merrill Lynch data for AAA and A-BBB yields. Source: Bank of America Merrill Lynch and Haver Analytics.

Figure 6.

13.2

13.2

S&P 500 FORWARD EARNINGS YIELD & CORPORATE BOND YIELD

12.2

12.2

11.2

S&P 500 Forward Earnings Yield* (4.9)

11.2

10.2

Corporate Bond Yield less LTEG weighted by 0.0, 0.1, and 0.2**

10.2

9.2

9.2

8.2

8.2

7.2

7.2

6.2

6.2

5.2

10/1

5.2

4.2

4.2

x0.0

3.2

3.2

x0.1

2.2

2.2

1.2

x0.2

1.2



.2

.2

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

* Year-ahead forward consensus expected earnings divided by S&P 500 stock price index. Monthly through 2005, then weekly. ** Corporate bond yield (average of Moody's Aaa-rated and Baa-rated corporate bond yields) less analysts' consensus of long-term earnings growth.

Monthly through April 1994, weekly after. Source: I/B/E/S data by Refinitiv, Standard & Poor's, and Federal Reserve Board.

Page 3 / October 4, 2021 / Fed's Stock Valuation Model Monthly/Weekly

Yardeni Research, Inc.



 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download