Fed's Stock Valuation Model (Monthly) - Yardeni Research
Stock Market Briefing: Fed's Stock Valuation Model
(Monthly)
Yardeni Research, Inc.
April 29, 2020
Dr. Edward Yardeni
516-972-7683 eyardeni@
Joe Abbott
732-497-5306 jabbott@
Mali Quintana
480-664-1333 aquintana@
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Table Of Contents Table Of Contents
Fed's Stock Valuation Model
1-5
April 29, 2020 / Fed's Stock Valuation Model (Monthly)
Yardeni Research, Inc.
Fed's Stock Valuation Model
Figure 1.
18
18
S&P 500 FORWARD EARNINGS YIELD & 10-YEAR US TREASURY BOND YIELD
17
17
16
16
15
15
14
14
13
13
12
S&P 500 Forward Earnings Yield* (6.5) 10-Year US Treasury Bond Yield (0.9)
12
11
11
10
10
9
9
8
8
7
7
Mar
6
6
5
5
4
4
3
3
2
2
1
Mar
1
0
0
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 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.
Figure 2.
100
100
STOCK VALUATION MODEL (using 10-year Treasury bond yield)*
(percent overvalued or undervalued)
50
50
0
0
-50
-50
Mar -100 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21
* 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 and Federal Reserve Board.
-100 23
Page 1 / April 29, 2020 / Fed's Stock Valuation Model (Monthly)
Yardeni Research, Inc.
Fed's Stock Valuation Model
Figure 3.
120
115 S&P 500 FORWARD P/E & RECIPROCAL OF BOND YIELD
120
Mar
115
110
110
105
105
100
100
95
95
90
90
85
85
80
80
75
75
70
Bonds' P/E* (114.9)
70
65
S&P 500 Forward P/E** (15.4)
65
60
60
55
55
50
50
45
45
40
40
35
35
30
30
25
25
20
20
15
Mar
15
10
10
5
5
79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23
* Reciprocal of 10-year US Treasury bond yield. ** S&P 500 stock price index divided by S&P 500 12-month forward consensus expected earnings.
Source: Standard & Poor's Corporation and I/B/E/S data by Refinitiv.
24075 20075 16075
12075
Figure 4.
STOCK VALUATION MODEL (using 10-year Treasury bond yield) (ratio scale)
8075 S&P 500 Stock Price Index
4075
S&P 500 Fair-Value Price*
24075
Mar
20075
16075
12075
8075
4075 Mar
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
* S&P 500 12-month forward consensus expected operating earnings divided by 10-year US Treasury bond yield. Source: I/B/E/S data by Refinitiv and Federal Reserve Board.
Page 2 / April 29, 2020 / Fed's Stock Valuation Model (Monthly)
Yardeni Research, Inc.
Fed's Stock Valuation Model
Figure 5.
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
Mar
0
0
79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 25
* 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 6.
20
20
S&P 500 FORWARD EARNINGS YIELD & CORPORATE BOND YIELD
S&P 500 Forward Earnings Yield*
15
Corporate Bond Yield Less LTEG
15
Weighted by 0.0, 0.1, and 0.2**
10
10
Mar
5
5
x0.0
x0.1
x0.2
0
0
79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 25
* 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: Thomson Reuters I/B/E/S, Standard & Poor's, Federal Reserve Board, and Haver Analytics.
Page 3 / April 29, 2020 / Fed's Stock Valuation Model (Monthly)
Yardeni Research, Inc.
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