Stocks Vs T Notes

[HeSaidSheSaid]

♦SP500 Earning Yield is about 3.78%
♦T Notes Yield is about 2.66%

so if you believe in fundamental analysis, then SP500 is about 29% cheaper than T Notes.

 

[JackRab]

Wow... wrong on all fronts... well.. maybe not all.

You can't just compare 2 different assets classes like that.

 

[srinir]

This is so called "Fed model" proposed by Ed yardeni in late 90's and has been discredited since.

For starter's, S&P earnings yield is in "real" terms, where as T-note yield is nominal.

 

[truetype]

For starters, S&P earnings yield is in "real" terms, where as T-note yield is nominal.

Say what?

 

[Martinghoul]

This is so called "Fed model" proposed by Ed yardeni in late 90's and has been discredited since.

For starter's, S&P earnings yield is in "real" terms, where as T-note yield is nominal.

View attachment 182138

S&P earnings yield is certainly a bit more real than the definitely nominal return on treasuries. However, there is a lot more to the discussion of "relative value" than just the headline yield differential.

 

[srinir]

Say what?

What?

 

[srinir]

S&P earnings yield is certainly a bit more real than the definitely nominal return on treasuries. However, there is a lot more to the discussion of "relative value" than just the headline yield differential.

Agree

 

[Martinghoul]

♦SP500 Earning Yield is about 3.78%
♦T Notes Yield is about 2.66%

so if you believe in fundamental analysis, then SP500 is about 29% cheaper than T Notes.

Also, why compare with the T-note yield? If you treat your SP500 as a perpetuity with 3.78% yield, its duration comes out to arnd 27.5 years. Surely, in light of that, you should be looking at SP500 vs 30y, no?

 

[srinir]

https://www.aqr.com/library/journal-articles/fight-the-fed-model

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.568.1656&rep=rep1&type=pdf

 

[srinir]

Also, why compare with the T-note yield? If you treat your SP500 as a perpetuity with 3.78% yield, its duration comes out to arnd 27.5 years. Surely, in light of that, you should be looking at SP500 vs 30y, no?

In my opinion, even that is an illusion. Empirical fit holds true only in low inflation environment. I have not looked at the data of 30 year yield and earnings yield in the 70's. Ten year counterpart did not fit well at all.