Are Equities Cheap Or Expensive When Compared To Bonds?

One of the topics that has dominated the post-Brexit equity market environment has been market valuation, specifically the market’s valuation in relation to bond yields.

A broad selection of analysts across Wall Street have weighed in on this issue, and all have reached very different conclusions -- hardly surprising considering the fact that they’ve all used different data samples.

For example, last week analysts at Bank of America declared that stocks look cheap compared to bonds when valued according to the Fed model of equity valuation. The Fed Model is based on the comparison of the earnings yield on stocks with bond yields. Bulls argue that the spread between bond yields and the earnings yield will normalise as equity valuations re-rate...