Fed model
TheoryDefinition
Compares the S&P 500 earnings yield (1/PE) to the 10Y Treasury yield. When earnings yield > Treasury yield, equities are "cheap" relative to bonds. When earnings yield < Treasury yield, equities are "expensive."
Popular among Wall Street strategists; criticized by academics (Cliff Asness wrote a paper called "Fight the Fed Model"). Empirically poor predictor of long-run returns — works briefly during disinflations, fails during stagflations.
Popular among Wall Street strategists; criticized by academics (Cliff Asness wrote a paper called "Fight the Fed Model"). Empirically poor predictor of long-run returns — works briefly during disinflations, fails during stagflations.