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In a follow-up to yesterday's post:
The earning’s yield (E/P) on the S&P 500 is currently 6.6%, which is the highest in 15 years, while the spread between the earning’s yield and the 30-year Treasury Bond is the widest in 30 years. Last week the S&P tested, and held, support. Meanwhile, the Transports are trying to break out to the upside. All of this should lead the equity markets higher.
Real Earnings Yield (REY) Model of the U.S. stock market, constructed by the CXO Advisory Group LLC as a potential decision aid for timing investments in equities. The REY model is kin to the Fed Model, but it uses the expected inflation rate (a wealth discount rate) rather than Treasury instrument yields (competitors to stocks) as a benchmark for the expected stock market earnings yield, defined as aggregate expected corporate operating earnings divided by stock index level.
Link to report