Capital Markets Summer 2022: Revealing Recession Patterns
II
Stocks vs. Bonds What’s Priced In?
• Even with the rise in interest rates, stocks “yield” significantly more than bonds
I
‒ Over 10-year periods in the past half century, S&P 500 EPS has always grown, averaging nearly 7% annually, while bond coupons do not grow
II
Equity “Yield” Is Attractive Relative to Treasuries…
…And Equity EPS Can Grow!
S&P 500 Earnings Yield 10-Yr Treasury Yield
S&P 500 EPS Growth
III
16%
12%
10%
12%
8%
IV
6%
8%
4%
2%
4%
0%
V
0%
-2%
Rolling 10-Yr Annual Growth
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
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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