Time Frame: Long
Category: Fundamental

Description

Over the long-term, the stock market will reflect the underlying business values of companies. Arguably, the two most influential factors in determining intrinsic value are - earnings and interest rates. Evaluating the trends of reported earnings and long-term interest rates can produce a useful yardstick for measuring the intrinsic value of the stock market.

Calculation & Significant Levels

S&P 500 Earnings Growth minus 12 month % change in Long Bond Yield: Calculated by subtracting the 12 month percentage change in the long-bond yield from the S&P 500 twelve month change in earnings. A result of 20% or greater is bullish, and a value below -20% is bearish.

Formula:
(12 mo. percent change in S&P 500 earnings) - (12 mo. percent change in the long-bond yield)

Gauge Elements: Magnitude
Updated: Weekly (as of Friday close)

Strategy