Fed's Stock Valuation Model Monthly/Weekly
Stock Market Briefing: Fed's Stock Valuation Model
Monthly/Weekly
Yardeni Research, Inc.
September 18, 2023
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
September 18, 2023 / 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* (5.40)
13
10-Year US Treasury
12
Bond Yield** (4.29)
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 21
18 17 16 15 14 13 12 11 10 9 8 7 6 9/15 5 9/15 4 3 2 1 0 23 25
* 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.
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
9/15
-50
-50
-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 25
* 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 / September 18, 2023 / Fed's Stock Valuation Model Monthly/Weekly
Yardeni Research, Inc.
Fed's Stock Valuation Model
Figure 3.
195
195
S&P 500 FORWARD P/E & RECIPROCAL OF BOND YIELD
185
185
175
175
165
165
155
155
145
145
135
135
125
125
115
Bond's P/E* (23.3)
115
105
S&P 500 Forward P/E** (18.5)
105
95
95
85
85
75
75
65
65
55
55
45
45
35
35
25
9/15 25
15
9/15 15
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 25
* 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.
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 12225
8175
9/15 9/15 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 / September 18, 2023 / 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 (5.0)
11.2
Baa Corporate Bond Yield (6.0)
10.2
Average of Aaa and Baa (5.5)
10.2
9.2
9.2
8.2
8.2
7.2
7.2
6.2
6.2
9/15
5.2
5.2
4.2
4.2
3.2
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* (5.4)
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
9/15 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 25
* 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 / September 18, 2023 / Fed's Stock Valuation Model Monthly/Weekly
Yardeni Research, Inc.
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