Valuation – 10-Year U.S. Treasury Real Yield vs. S&P 500 Forward Price/Earnings Ratio Despite higher real rates, the S&P 500’s valuation remains elevated. Image: Morgan Stanley Wealth Management
Valuation – S&P 500’s Forward 12-Month Price-Earnings Ratio vs. U.S. 10-Year Real Treasury Yields U.S. stock valuations may be vulnerable to rising real yields. Image: Bloomberg
Valuation – U.S. 10-Year Real Yield and MSCI World Index Forward Price/Earnings Ratio The price of global equities is expected to fall, if U.S. real yields rise. Image: Morgan Stanley Wealth Management
Earnings Price Yield for S&P 500 Minus Maturity of 10-Year Treasuries This chart suggests that equities are more attractive relative to fixed income. But the equity risk does not disappear because the spread (earnings yield minus Treasury yield) is positive. Image: Bhirud Associates
Valuation – S&P 500 P/E, S&P Equity Risk Premium and U.S. 10-Year Treasury Yields Significant multiple expansion in the absence of a corresponding increase in earnings growth can generally be a warning sign that U.S. stocks are getting too expensive. Image: Morgan Stanley Research
World Equities and U.S. 10-Year Treasury Bond Yield Chart suggesting to sell stocks if the earnings yield spread reaches 2.5%. Image: BCA Research
U.S. Corporate Profits and 10Y-3M Yield Curve While the divergence between large-cap profits and the rest of the economy is the widest on record, the steepening yield curve suggests an earnings rebound. Image: BofA Global Research
Valuation of the S&P 500 and the Top 5 Stocks Relative to Interest Rates The earnings yield gap for the top 5 stocks is 191 bp, just above the 40-year average of 144 bp. Image: Goldman Sachs Global Investment Research
S&P 500 Valuation and Equity Risk Premium This chart shows that the equity risk premium (earnings yield less 10-year Treasury yield) has declined to 3.9%. Image: Fidelity Investments
Equity Risk Premium The equity risk premium (earnings yield less bond yield) stands at 4.48% (the 90th percentile since 1985). It suggests that equities are cheap relative to bonds. Image: Fidelity Investments
Time Lags Between Indicators and Recessions Chart showing that credit standards, earnings and the yield curve are the earliest recession indicators. Image: Oxford Economics