Stock Market Briefing: Monthly/Weekly March 9, 218 Dr. Edward Yardeni 516-972-7683 eyardeni@ Joe Abbott 732-497-536 jabbott@ Mali Quintana 48-664-1333 aquintana@ Please visit our sites at www. blog. thinking outside the box
Table Of Contents Table Of Contents 1-5 March 9, 218 / Monthly/Weekly www.
18 17 16 15 14 13 12 11 1 9 8 7 6 5 4 3 2 1 Figure 1. S&P FORWARD EARNINGS YIELD & NOMINAL 1-YEAR TREASURY BOND YIELD S&P Forward Earnings Yield* 1-Year US Treasury Bond Yield** 18 17 16 15 14 13 12 11 1 9 8 7 6 5 4 3 2 1 * Year-ahead forward consensus expected earnings divided by S&P stock price index. Monthly through March 1994, then weekly. ** Monthly through March 1994, then weekly. Source: Thomson Reuters I/B/E/S and Federal Reserve Board. 1 Figure 2. STOCKS vs. BONDS VALUATION MODEL (using 1-year Treasury bond yield)* (percent overvalued or undervalued) 1 - - -1-1 * S&P stock price index divided by S&P fair-value price defined as S&P 12-month forward consensus expected earnings divided by 1-year US Treasury bond yield converted to percentage. Monthly through April 1994, weekly after. Source: Thomson Reuters I/B/E/S and Federal Reserve Board. Page 1 / March 9, 218 / Monthly/Weekly www.
7 65 6 55 45 4 Figure 3. S&P FORWARD P/E & RECIPROCAL OF BOND YIELD Bond s P/E* (12.8) S&P Forward P/E** (12.3) 7 65 6 55 45 4 35 3 25 2 15 1 5 35 3 25 2 15 1 5 * Reciprocal of 1-year US Treasury bond yield. ** 52-week forward consensus expected S&P operating earnings per share. Monthly through March 1994, weekly thereafter. Source: Standard & Poor s and Thomson Reuters I/B/E/S. 9525 84 7425 63 5325 42 Figure 4. STOCK VALUATION MODEL (using 1-year Treasury bond yield) (ratio scale) 9525 84 7425 63 5325 42 3225 21 S&P Stock Price Index* S&P Fair-Value Price** 3/9 3225 21 1125 1125 * Monthly through April 1994, weekly after. ** Year-ahead forward consensus expected earnings divided by 1-year US Treasury bond yield. Monthly through April 1994, weekly after. Source: Thomson Reuters I/B/E/S, Standard & Poor s, and Federal Reserve Board. Page 2 / March 9, 218 / Monthly/Weekly www.
14.2 13.2 12.2 11.2 1.2 9.2 8.2 7.2 6.2 5.2 Figure 5. CORPORATE BOND YIELDS* (percent) Aaa Corporate Bond Yield (3.8) Baa Corporate Bond Yield (4.6) Average of Aaa and Baa (4.2) 14.2 13.2 12.2 11.2 1.2 9.2 8.2 7.2 6.2 5.2 4.2 3.2 2.2 85 86 87 88 89 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 18 19 2 4.2 3.2 2.2 * Moody s Aaa and Baa yields through 25, then BoA Merrill Lynch data for AAA and A-BBB yields. Source: Bank of America Merrill Lynch and Haver Analytics. 13.2 12.2 11.2 1.2 9.2 8.2 7.2 Figure 6. S&P FORWARD EARNINGS YIELD & CORPORATE BOND YIELD S&P Forward Earnings Yield* (6.) Corporate Bond Yield less LTEG weighted by.,.1, and.2** 13.2 12.2 11.2 1.2 9.2 8.2 7.2 6.2 5.2 6.2 5.2 4.2 3.2 2.2 1.2.2 x. x.1 x.2 85 86 87 88 89 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 18 19 2 4.2 3.2 2.2 1.2.2 * Year-ahead forward consensus expected earnings divided by S&P stock price index. Monthly through 25, 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: Thomson Reuters I/B/E/S, Standard & Poor s, and Federal Reserve Board. Page 3 / March 9, 218 / Monthly/Weekly www.
5325 42 3225 Figure 7. STOCK VALUATION MODEL (using average of Aaa and Baa corporate bond yield) (ratio scale) 3/9 5325 42 3225 21 21 1125 S&P Stock Price Index S&P Fair-Value Price* 1125 * Year-ahead forward consensus expected earnings divided by average of Moody s Aaa and Baa yields through 25, then weekly BoA Merrill Lynch data for AAA and A-BBB yields. Source: Thomson Reuters I/B/E/S, Standard & Poor s, Bank of America Merrill Lynch, and Federal Reserve Board. 1 Figure 8. STOCKS vs. BONDS VALUATION MODEL (using average of Aaa and Baa corporate bond yield)* (percent overvalued or undervalued) 1 1 1 - - -1-1 * S&P stock price index divided by S&P fair-value price defined as S&P 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: Thomson Reuters I/B/E/S, Standard & Poor s, Bank of America Merrill Lynch, and Federal Reserve Board. Page 4 / March 9, 218 / Monthly/Weekly www.
1 Figure 9. STOCKS vs. BONDS VALUATION MODEL (percent overvalued or undervalued) 1 1 Using Treasury Bond* (-33.8) Using Corporate Bond** (-13.4) 1 - - -1-1 * S&P 52-week forward consensus expected earnings divided by 1-year US Treasury bond yield converted to percentage. Monthly through 25, weekly after. ** S&P 52-week forward consensus expected earnings divided by average of Moody s Aaa and Baa yields through 25, then BoA Merrill Lynch data for AAA and A-BBB yields, converted to percentage.. Source: Thomson Reuters I/B/E/S, Bank of America Merrill Lynch, and Federal Reserve Board. Page 5 / March 9, 218 / Monthly/Weekly www.
Copyright (c) 218. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on www., blog., http://blog. and YRI s Apps for ipads and iphones are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company s stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed on any product, service, report, email or website are proprietary to and constitute valuable intellectual property. No material from any part of www., blog., http://blog. and YRI s Apps for ipads and iphones may be downloaded, transmitted, broadcast, transferred, assigned, reproduced or in any other way used or otherwise disseminated in any form to any person or entity, without the explicit written consent of All unauthorized reproduction or other use of material from Yardeni Research, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Yardeni Research, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights. The recipient should check any email and any attachments for the presence of viruses. accepts no liability for any damage caused by any virus transmitted by this company s emails, website, blog and Apps. Additional information available on request. requests@