Market Valuation Measures: Does the Fed Model Really Work?
by Stephen E. Wilcox
Some market commentators in the media would have us believe so, based on evidence from the Fed Model.
The Fed Model is a measure that is often used to judge the relative attractiveness of stocks compared to other asset categories. This approach compares the yield on 10-year Treasury bonds to the earnings yield on the S&P 500: Stocks become more attractive as earnings yields rise above those on 10-year Treasury bonds.
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