Chapter 14 Charts: Predicting Valuation

Predicting the Markets Chapter 14 Charts: Predicting Valuation

Yardeni Research, Inc.

December 12, 2021

Dr. Edward Yardeni

Chief Investment Strategist

Mali Quintana

Senior Economist info@

Please visit our sites at blog.

thinking outside the box

Table Of Contents Table Of Contents

Predicting Valuation

1-21

December 12, 2021 / Chapter 14 Charts: Predicting Valuation

Yardeni Research, Inc.



Predicting Valuation

Figure 1.

55

FORWARD P/E RATIOS FOR S&P 500 STOCK PRICE INDEX*

45

Forward P/Es

S&P 500

35

S&P 500 Technology

25

55

45

35 Nov

25

15

15



5

5

79 80 81 82 83 84 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

* S&P 500 stock price index divided by S&P 500 12-month forward consensus expected operating earnings. Source: I/B/E/S data by Refinitiv.

Figure 2.

18

18

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

17

17

16

16

15

15

14

S&P 500 Forward Earnings Yield*

14

13

US Treasury 10-Year Bond Yield

13

12

12

11

11

10

10

9

9

8

8

7

7

6

6

5

Nov

5

4

4

3

3

2

2

Nov

1

1



0

0

79 80 81 82 83 84 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

* S&P 500 12-month forward consensus expected operating earnings divided by S&P 500 stock price index. Source: I/B/E/S data by Refinitiv and Federal Reserve Board.

Page 1 / December 12, 2021 / Chapter 14 Charts: Predicting Valuation

Yardeni Research, Inc.



Predicting Valuation

24075 20075 16075

12075

Figure 3.

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

8075

S&P 500 Stock Price Index

4075

S&P 500 Fair-Value Price*

24075 20075 16075 Nov 12075

8075

Nov 4075



75

75

79 80 81 82 83 84 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

* S&P 500 12-month forward consensus expected operating earnings divided by US Treasury 10-year bond yield. Source: I/B/E/S data by Refinitiv, Standard & Poor's, and Federal Reserve Board.

Figure 4.

100

100

STOCK VALUATION MODEL (using US Treasury 10-year bond yield)*

(percent overvalued or undervalued)

50

50

Overvalued

0

0

Undervalued

-50

-50

Nov



-100

-100

79 80 81 82 83 84 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

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

Page 2 / December 12, 2021 / Chapter 14 Charts: Predicting Valuation

Yardeni Research, Inc.



Predicting Valuation

Figure 5.

28

28

S&P 500 LONG-TERM CONSENSUS EXPECTED EARNINGS GROWTH (LTEG)*

26

(percent annual rate)

26

24

24

22

Nov

22

20

20

18

18

16

16

14

14

12

12

10

10



8

8

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

* LTEG is 5-year forward consensus expected earnings growth. Source: I/B/E/S data by Refinitiv.

Figure 6.

34

34

S&P 500 LONG-TERM CONSENSUS EXPECTED EARNINGS GROWTH

32

(percent annual rate)

32

30

30

28

28

26

26

24

LTEG*

24

S&P 500 (21.7)

22

S&P 500 Information Technology (18.0)

Nov

22

20

20

18

18

16

16

14

14

12

12

10

10



8

8

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

* LTEG is five-year forward consensus expected earnings growth. Source: I/B/E/S data by Refinitiv.

Page 3 / December 12, 2021 / Chapter 14 Charts: Predicting Valuation

Yardeni Research, Inc.



Predicting Valuation

Figure 7.

20

20

CORPORATE BOND YIELDS

(percent)

Corporate Bond Yields*

AAA Corporate Bond Yield

15

A-BBB Corporate Bond Yield

15

Average Corporate Yield

10

10

5

5

Nov



0

0

79 80 81 82 83 84 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 data for Aaa and Baa yields through 1996, then ICE Bofa Merrill Lynch data for AAA and BBB yields. Source: Federal Reserve Board and Haver Analytics.

Figure 8.

600

600

YIELD SPREAD*: CORPORATE & US TREASURY 10-YEAR BOND (basis points)

500

500

400

400

300

300

200

200

Nov

100

100



0

0

54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24 26

* Corporate bond yield is average of Moody's Aaa and Baa yields through 1996, then average of ICE Bofa Merrill Lynch data for AAA and BBB yields. Note: Shaded areas are recessions according to the National Bureau of Economic Research. Source: Federal Reserve Board and Haver Analytics.

Page 4 / December 12, 2021 / Chapter 14 Charts: Predicting Valuation

Yardeni Research, Inc.



Predicting Valuation

Figure 9.

20

20

S&P 500 FORWARD EARNINGS YIELD & CORPORATE BOND YIELD

15

15

10

10

5 Corporate Bond Yield**

S&P 500 Forward Earnings Yield*

12/10

12/3

5



0

0

79 80 81 82 83 84 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

* S&P 500 12-month forward consensus expected operating earnings divided by S&P 500 stock price index. ** Corporate bond yield is average of Moody's Aaa and Baa yields through 1996, then ICE Bofa Merrill Lynch data for AAA and BBB yields.

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

Figure 10.

20

20

S&P 500 FORWARD EARNINGS YIELD & CORPORATE BOND YIELD

15

S&P 500 Forward Earnings Yield*

15

Corporate Bond Yield Less LTEG Weighted by 0.0, 0.1, and 0.2**

10

10

5

Nov

5

x0.0

x0.1

0

0

x0.2



-5

-5

79 80 81 82 83 84 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 25 26

* S&P 500 12-month forward consensus expected operating earnings divided by S&P 500 stock price index. ** Corporate bond yield (average of Moody's Aaa and Baa yields through 1996, then average of ICE Bofa Merrill Lynch data for AAA and BBB yields)

less analysts' consensus of S&P 500 long-term earnings growth. Source: I/B/E/S data by Refinitiv, Standard & Poor's, Federal Reserve Board, and Haver Analytics.

Page 5 / December 12, 2021 / Chapter 14 Charts: Predicting Valuation

Yardeni Research, Inc.



Predicting Valuation

Figure 11.

8475

7425 STOCK VALUATION MODEL (using corporate bond yield) 6375 (ratio scale)

5325 4275

3225

2175

S&P 500 Stock Price Index

S&P 500 Fair-Value Price*

1125

8475

Nov

7425

6375

5325

Nov

4275

3225

2175

1125



75

75

79 80 81 82 83 84 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 25 26

* S&P 500 forward consensus expected operating earnings divided by corporate bond yield (average of Moody's Aaa and Baa yields through 1996, then average of ICE Bofa Merrill Lynch data for AAA and A-BBB yields). Source: I/B/E/S data by Refinitiv, Standard & Poor's, Federal Reserve Board, and Haver Analytics.

Figure 12.

100

FED'S STOCK VALUATION MODEL (percent overvalued or undervalued)

50

100

Percentage S&P 500 Over/Under Valued Relative to Fair Value

Using Treasury Bond Yield*

50

Using Corporate Bond Yield**

0

0

Nov

-50

-50

Nov



-100

-100

79 80 81 82 83 84 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

* S&P 500 12-month forward consensus expected operating earnings divided by 10-year US Treasury bond yield converted to percentage. ** S&P 500 12-month forward consensus expected operating earnings divided by corporate bond yield (using average of Moody's Aaa and Baa yields

through 1996, then average of ICE Bofa Merrill Lynch data for AAA and A-BBB yields) converted to percentage. Source: I/B/E/S data by Refinitiv, Standard & Poor's, Federal Reserve Board, and Haver Analytics.

Page 6 / December 12, 2021 / Chapter 14 Charts: Predicting Valuation

Yardeni Research, Inc.



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

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

Google Online Preview   Download