Capital Markets: Observations & Insights

IV

An Easy Choice? Lending vs. Owning

• Investors are paying a big premium for the safety of Treasuries relative to equities but how risky are stock fundamentals over the long term? ‒ Over 10-year periods in the past half century, S&P 500 EPS has grown an average of nearly 7% annually, or over 90%, while a Treasury bond coupon does not grow

I

II

Stock P/E Is Attractive Relative to Treasuries…

…And Equity EPS Can Grow!

S&P 500 P/E 10-Yr Treasury "P/E"

S&P 500 EPS Treasury Bond Coupon

III

60x

12%

10%

50x

8%

40x

IV

6%

30x

4%

20x

2%

10x

0%

V

0x

-2%

Rolling 10-Yr Annual Growth

1970

1977

1984

1991

1998

2005

2012

2019

1970

1977

1984

1991

1998

2005

2012

2019

VI

Source: FactSet, Robert Shiller, Alger. Notes: periods used were annual. Treasury “P/E” is inverse of yield to maturity. Earnings per share (EPS) is the portion of a company's earnings or profit allocated to each share of common stock.

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