Way back in late, 1999, and early 2000, the SP 500 earnings yield on the SP 500 was roughly 3.3%, using the 1999 actual EPS of the SP 500 of roughly $50 per share, and an SP 500 value of 1,500.<\/p>\n
The thing was that the yield on the 10-year Treasury in late, 1999, early 2000 was roughly 6.6%. The highest yield the 10-year Treasury seen after that was roughly 5% in 2006, and then again in early, 2007.<\/p>\n
Fed Model<\/a> groupies know where I’m headed with this.<\/p>\n Today, the SP 500 earnings yield (using today’s closing value on the SP 500 of 2,361) is 5.68%, with the close today on the 10-year Treasury yield of 2.40%.<\/p>\n After peaking out last fall between 6.01% and 6.05%, from October 1, ’16 through November 4 ’16, the SP 500 earnings yield has steadily declined to this week’s 5.68%.<\/p>\n The highest “earnings yield” recorded that i can recall, is 8.5% in June, 2012. That was near the point of the Greek Debt Crisis, (The Greeks were within a few weeks of an “austerity-or-socialism” election choice, and about the time that 10-year Treasury yield was making its first record low at 1.39%.)<\/p>\n In June, 2012, difference between the SP 500 earnings yield and the 10-year Treasury note was a whopping 700 bp’s. Today the Fed Model spread is 327 basis points. Certainly much narrower, but no where near the inversion from the late 1990’s, early 2000’s.<\/p>\n Frankly, the 327 basis point surprised me a little bit – I thought it would be a little wider.<\/p>\n Analysis \/ conclusion:<\/strong><\/em> Tomorrow, you can find the weekly SP 500 Earnings update here on this blog, but – for whatever reason – Ive been thinking about the SP 500 earnings yield recently. The surprise this year – given tax reform – is that the SP 500 earnings estimate could get a nice boost from said reform<\/a>, and thus it will be interesting to watch the change in the forward estimate and tax reform once President Trump lays out his tax plan expectations next week.<\/p>\n From a -330 basis point inversion in the late 1990’s to a plus 700 basis point premium in June, 2012, tracking the Fed Model spread can be informative.<\/p>\n The 327 basis point positive spread today, should tell readers stocks are still cheap to bonds, but certainly that valuation difference has narrowed.<\/p>\n More to come tomorrow.<\/p>\n Thanks for reading.<\/p>\n <\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" Way back in late, 1999, and early 2000, the SP 500 earnings yield on the SP 500 was roughly 3.3%,…<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[41,162],"tags":[],"class_list":["post-6678","post","type-post","status-publish","format-standard","hentry","category-fed-model","category-sp-500-earnings-yield"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/6678","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=6678"}],"version-history":[{"count":3,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/6678\/revisions"}],"predecessor-version":[{"id":6681,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/6678\/revisions\/6681"}],"wp:attachment":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=6678"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=6678"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=6678"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}