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about market valuation and the Fed model that breaks some new ground. It is sufficiently different from his past work to deserve some special attention. Background At "A Dash" we believe that thinking about valuation is important. Some idea of overall market valuation helps both individual investors and traders by providing context about risk and reward. Significant deviations in market prices from the "fair value" of one's model provide a signal of what we call long-term sentiment, be it euphoria or a " negativity bubble. " Dr. Hussman agrees about the importance of valuation, since he writes about it on ...
of stock market valuation is that investors use a Treasury note (T-note) yield as a benchmark for the expected (forward) earnings yield of the stock market. When the gap between the forward earnings yield and the T-note yield is positive (negative), stocks are relatively attractive (unattractive), and investors bid stocks up (down) to restore yield parity. To test that belief, we relate the gap between the S&P 500 1-year forward earnings yield and the 1-year T-note yield to future returns for the S&P 500 index . We calculate the 1-year forward earnings yield from the Read More
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