Stock Market Briefing: Fed’s Stock Valuation Model Monthly/Weekly
Yardeni Research, Inc.
September 29, 2021
Dr. Edward Yardeni 516-972-7683 [email protected]
Joe Abbott 732-497-5306 [email protected]
Mali Quintana 480-664-1333 [email protected]
Please visit our sites at www.yardeni.com blog.yardeni.com
thinking outside the box Table Of Contents TableTable OfOf ContentsContents
Fed’s Stock Valuation Model 1-5
September 29, 2021 / Fed’s Stock Valuation Model Monthly/Weekly Yardeni Research, Inc. www.yardeni.com Fed’s Stock Valuation Model Figure 1. 18 18 17 S&P 500 FORWARD EARNINGS YIELD & NOMINAL 10-YEAR TREASURY BOND YIELD 17 16 16 15 15 14 14 S&P 500 Forward Earnings Yield* (4.82) 13 10-Year US Treasury 13 12 Bond Yield** (1.37) 12 11 11 10 10 9 9 8 8 7 Mar 7 6 6
5 9/24 5 4 4 3 3 2 2 9/24 1 1 yardeni.com 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
* 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 0 undervalued
-50 -50
9/24
yardeni.com -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 / September 29, 2021 / Fed’s Stock Valuation Model Monthly/Weekly Yardeni Research, Inc. www.yardeni.com Fed’s Stock Valuation Model Figure 3. 195 195 S&P 500 FORWARD P/E & RECIPROCAL OF BOND YIELD 185 185 175 175 165 165 155 155 145 145 135 135 125 125 115 115 Bond’s P/E* (73.0) 105 S&P 500 Forward P/E** (20.7) 105 95 95 85 85 75 9/24 75 65 65 55 55 45 45 35 35 25 25 9/24 15 15 yardeni.com 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. ** 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.
Figure 4. 28425 28425 24375 STOCK VALUATION MODEL (using 10-year Treasury bond yield) 24375 20325 (ratio scale) 20325 16275 9/24 16275 12225 12225
8175 8175 S&P 500 Stock Price Index* 4125 S&P 500 Fair-Value Price** 9/24 4125
yardeni.com 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 29, 2021 / Fed’s Stock Valuation Model Monthly/Weekly Yardeni Research, Inc. www.yardeni.com 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 (2.5) 11.2 Baa Corporate Bond Yield (3.1) 10.2 10.2 Average of Aaa and Baa (2.8) 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 3.2 9/24 2.2 2.2 yardeni.com 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* (4.8) 11.2 10.2 Corporate Bond Yield less LTEG 10.2 weighted by 0.0, 0.1, and 0.2** 9.2 9.2
8.2 8.2
7.2 7.2
6.2 6.2
5.2 5.2 9/24 4.2 4.2 x0.0 3.2 3.2 x0.1 2.2 2.2
1.2 x0.2 1.2 yardeni.com .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 / September 29, 2021 / Fed’s Stock Valuation Model Monthly/Weekly Yardeni Research, Inc. www.yardeni.com Fed’s Stock Valuation Model Figure 7. 7575 9/24 7575 6075 STOCK VALUATION MODEL (using average of Aaa and Baa corporate bond yield) 6075 (ratio scale) 4575 9/24 4575
3075 3075
S&P 500 Stock Price Index 1575 S&P 500 Fair-Value Price* 1575
yardeni.com 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
* Year-ahead forward consensus expected earnings divided by average of Moody’s Aaa and Baa yields through 2005, then weekly BoA Merrill Lynch data for AAA and A-BBB yields. Source: I/B/E/S data by Refinitiv, Standard & Poor’s, Bank of America Merrill Lynch, and Federal Reserve Board.
Figure 8. 150 150 STOCKS vs. BONDS VALUATION MODEL (using average of Aaa and Baa corporate bond yield)* (percent overvalued or undervalued)
100 100
50 50
0 0
9/24 -50 -50
yardeni.com -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 52-week forward consensus expected earnings divided by average of Moody’s Aaa and Baa yields through 1996, then weekly BoA Merrill Lynch data for AAA and A-BBB yields, converted to percentage. Source: I/B/E/S data by Refinitiv, Standard & Poor’s, Bank of America Merrill Lynch, and Federal Reserve Board.
Page 4 / September 29, 2021 / Fed’s Stock Valuation Model Monthly/Weekly Yardeni Research, Inc. www.yardeni.com Fed’s Stock Valuation Model Figure 9. 100 100 STOCKS vs. BONDS VALUATION MODEL (percent overvalued or undervalued)
50 Using Treasury Bond* (-71.6) 50 Using Corporate Bond** (-41.7)
0 0
9/24 -50 -50
9/24
yardeni.com -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 52-week forward consensus expected earnings divided by 10-year US Treasury bond yield converted to percentage. Monthly through 2005, weekly after. ** S&P 500 52-week forward consensus expected earnings divided by average of Moody’s Aaa and Baa yields through 2005, then BoA Merrill Lynch data for AAA and A-BBB yields, converted to percentage.. Source: I/B/E/S data by Refinitiv, Bank of America Merrill Lynch, and Federal Reserve Board.
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