Pennsylvania Trust

Fed Model: Stocks are Cheaper than Bonds (Relatively)

Fed Model: Stocks are Cheaper than Bonds (Relatively)

The spread between the S&P 500 Index’s earnings yield and the yield on the 10-year Treasury note (the Fed Model) tends to be an accurate barometer for the equity market.

A reading of more than 3 percent is typically a bullish signal for stocks (model also says stocks are cheaper than bonds).

The spread reached a two-month high of 3.02 percent on Monday.

Disclosure: This Commentary represents a review of topics of possible interest to Pennsylvania Trust’s clients and is not personalized investment advice. It contains Pennsylvania Trust’s opinions, which may change following the date of publication. Information obtained from third-party sources is assumed to be reliable but is not guaranteed. No outcome – including performance – is guaranteed, due to various uncertainties and risks. This document is not a recommendation of any particular investment. Investment decisions for clients are made on an individualized basis and may be different from what is expressed here. Past performance is no guarantee of future results.