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.

15