Chapter 14 Charts: Predicting Valuation

Predicting ValuationFigure 19.3232S&P 500 P/E RATIOSS&P 500 P/EsTrailing (using operating i.com8889 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24* Using 4-quarter trailing operating earnings.** S&P 500 stock price index divided by S&P 500 12-month forward consensus expected operating earnings.Source: I/B/E/S data by Refinitiv and Standard & Poor’s.Figure 20.50S&P 500 P/E RATIOS50Capped at 45due to extreme values4540354540S&P 500 P/EsTrailing(using reported eni.com5578 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24* Using 4-quarter trailing reported earnings.** S&P 500 stock price index divided by S&P 500 12-month forward consensus expected operating earnings.Source: I/B/E/S data by Refinitiv and Standard & Poor’s.Page 10 / December 12, 2021 / Chapter 14 Charts: Predicting ValuationYardeni Research, Inc.www.yardeni.com

Predicting ValuationFigure 21.3535S&P 500 P/E BASED ON TRAILING EARNINGS*Capped at 30 due to extreme values3030Q32525Average 16.12020151510105yardeni.com535 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 25 27* Using quarterly average of monthly data for S&P 500 price index and 4-quarter trailing reported earnings.Source: Standard & Poor’s.Figure 22.252025S&P 500 .8.6S&P 500 PEG RATIOPEG***Novyardeni.com85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24* P/E price-to-earnings ratio using mid-month price and 12-month forward consensus earnings expectations.** LTEG consensus median 5-year expected earnings growth.*** PEG P/E divided by LTEG.Source: I/B/E/S data by Refinitiv.Page 11 / December 12, 2021 / Chapter 14 Charts: Predicting ValuationYardeni Research, Inc.www.yardeni.com

Predicting ValuationFigure 23.2726252.9S&P 500 VALUATION MEASURES(weekly)12/22.7Forward P/E*242.523Forward 2014201520162017201820192020202120222023.72024* Price divided by forward consensus expected operating earnings per share.** Price divided by forward consensus expected sales per share.Source: I/B/E/S data by Refinitiv.Figure 24.3.53.5STOCK MARKET CAPITALIZATION RATIOS3.02.53.0Q3Q3S&P 500 Market Cap(as a ratio of S&P 500 Revenues)US Equity Market Capitalization Ex Foreign Issues(as a ratio of nominal GNP)2.52.02.01.51.51.01.0.5.5yardeni.com.0.052 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24 26Note: Shaded red areas are S&P 500 bear market declines of 20% or more. Yellow areas show bull markets.Source: Federal Reserve Board, Financial Accounts of the United States, Bureau of Economic Analysis, and Standard & Poor’s.Page 12 / December 12, 2021 / Chapter 14 Charts: Predicting ValuationYardeni Research, Inc.www.yardeni.com

Predicting ValuationFigure 25.2.92.72.9STOCK MARKET CAPITALIZATION RATIO& S&P 500 1.91.71.71.51.51.31.31.11.1US Equity Market CapitalizationEx Foreign Issues*(as a ratio of nominal GNP)Forward P/S**.9.7.9.7yardeni.com.5.593 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24* Total excluding market value of holdings by US residents of foreign corporate equities, investment fund shares, and ADRs.** S&P 500 index divided by forward consensus expected revenues per share for S&P 500. Monthly through 2005, then weekly.Note: Shaded red areas are S&P 500 bear market declines of 20% or more. Yellow areas show bull markets.Source: Federal Reserve Board, Financial Accounts of the United States, Bureau of Economic Analysis, and Standard & Poor’s.Figure 26.4.54.5Tobin’s Q & STOCK MARKET CAPITALIZATION RATIO4.04.03.53.03.5Tobin’s Adjusted q* for Nonfinancial CorporationsUS Equity Market Capitalization Ex Foreign Issues(as a ratio of nominal .0.052 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24 26* Actual divided by average since 1952.Note: Shaded red areas are S&P 500 bear market declines of 20% or more. Yellow areas show bull markets.Source: Federal Reserve Board, Financial Accounts of the United States, Bureau of Economic Analysis, and Standard & Poor’s.Page 13 / December 12, 2021 / Chapter 14 Charts: Predicting ValuationYardeni Research, Inc.www.yardeni.com

Predicting ValuationFigure 27.3030S&P 500 P/E BASED ON TRAILING EARNINGS vs CPITrailing P/E*CPI(yearly percent change)2525Q3202015151010Nov5500-5yardeni.com-535 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 25 27* Using quarterly average of daily data for S&P 500 price index, and 4-quarter trailing reported earnings through Q3-1988, then operating earnings.Source: Standard & Poor’s and Bureau of Labor Statistics.Figure 28.3535S&P 500 P/E BASED ON TRAILING EARNINGS vs US TREASURY 10-YEAR BOND YIELDTrailing P/E*10-Year Bond Nov053 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 25 27* Using quarterly average of daily data for S&P 500 price index, and 4-quarter trailing reported earnings through Q3-1988, then operating earnings.Source: Standard & Poor’s and Federal Reserve Board.Page 14 / December 12, 2021 / Chapter 14 Charts: Predicting ValuationYardeni Research, Inc.www.yardeni.com

Predicting ValuationFigure 29.1818S&P 500 EARNINGS YIELD vs US TREASURY 10-YEAR BOND YIELD(percent)16161414S&P 500 Earnings Yield*10-Year Bond Yield121210108866Q342042Novyardeni.com053 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 25 27* Using quarterly average of daily data for S&P 500 price index, and 4-quarter trailing reported earnings through Q3-1988, then operating earnings.Source: Standard & Poor’s and Federal Reserve Board.Figure 30.2525S&P 500 REPORTED EARNINGS YIELD*vs CPI INFLATION RATE**20201515S&P 500 Earnings YieldCPI Inflation 590950005101520-525* S&P 500 reported earnings as a percent of quarterly average S&P 500 index. Q4-2008 dropped because of negative value.** Year-over-year percent change in three-month average of each quarter.Source: Standard & Poor’s and Bureau of Labor Statistics.Page 15 / December 12, 2021 / Chapter 14 Charts: Predicting ValuationYardeni Research, Inc.www.yardeni.com

Predicting ValuationFigure 31.1212S&P 500 REPORTED EARNINGS YIELD* MINUS CPI INFLATION RATE**9966Average 3.33300Q3yardeni.com-3-352 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24 26* S&P 500 reported earnings as a percent of quarterly average S&P 500 index. Q4-2008 dropped because of negative value.** Year-over-year percent change in three-month average of each quarter.Note: Shaded red areas are S&P 500 bear market declines of 20% or more. Yellow areas show bull markets.Source: Standard & Poor’s and Bureau of Labor Statistics.Figure 32.2828RULE OF 20: S&P 500 FORWARD P/E vs 20 MINUS CPI INFLATION RATE2626242420 Minus CPI Inflation Rate*S&P 500 Forward 426* Yearly percent change.** Average monthly S&P 500 stock price index divided by S&P 500 12-month forward consensus expected operating earnings per share.Note: Shaded red areas are S&P 500 bear market declines of 20% or more. Yellow areas show bull markets.Source: Bureau of Labor Statistics, Standard & Poor’s, and I/B/E/S data by Refinitiv.Page 16 / December 12, 2021 / Chapter 14 Charts: Predicting ValuationYardeni Research, Inc.www.yardeni.com

Predicting ValuationFigure 33.3232RULE OF 20: S&P 500 FORWARD P/EPLUS CPI 121416182022241026* Using forward P/E monthly and yearly percent change in CPI.Note: Bear markets are declines of 20% or more (in red shades).Source: I/B/E/S data by Refinitiv, Standard & Poor’s, and Bureau of Labor Statistics.Figure 34.2727FORWARD PE RATIO FOR S&P 500 vs MISERY INDEX25252323Misery Index*S&P 500 Forward 426* Unemployment rate plus yearly percent change in consumer price index.** Price divided by 12-month forward consensus expected operating earnings per share.Source: I/B/E/S data by Refinitiv, Standard & Poor’s, and Bureau of Labor Statistics.Page 17 / December 12, 2021 / Chapter 14 Charts: Predicting ValuationYardeni Research, Inc.www.yardeni.com

Predicting ValuationFigure 35.2626MISERY INDEX* & STOCK MARKET 866442yardeni.com248 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24 26 28* Unemployment rate plus yearly percent change in consumer price index.Note: Shaded red areas are S&P 500 bear market declines of 20% or more. Yellow areas show bull markets.Source: Bureau of Labor Statistics.Figure 36.4040S&P 500 FORWARD P/E* PLUS MISERY INDEX**3535Nov3030Average 204060810121416182022241526* Average monthly S&P 500 stock price index divided by S&P 500 12-month forward consensus expected operating earnings per share.** Unemployment rate plus yearly percent change in consumer price index.Note: Bear markets are declines of 20% or more (in red shades).Source: Bureau of Labor Statistics, Standard & Poor’s, and I/B/E/S data by Refinitiv.Page 18 / December 12, 2021 / Chapter 14 Charts: Predicting ValuationYardeni Research, Inc.www.yardeni.com

Predicting ValuationFigure 37.9090S&P DIVIDEND PAYOUT RATIO*(percent)8080S&P 500S&P Industrials Composite7070606050504040Q3302030yardeni.com2046 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24 26 28* Four-quarter trailing dividends per share divided by four-quarter trailing reported earnings.S&P 500 dividend payout not available from Q4-2008 to Q3-2009 because dividends exceeded earnings.Source: Standard & Poor’s.Figure 38.100yardeni.comS&P 500 COMPANIES PAYING A DIVIDEND100(percent of 9294969800020406081012141618202224Source: Standard & Poor’s.Page 19 / December 12, 2021 / Chapter 14 Charts: Predicting ValuationYardeni Research, Inc.www.yardeni.com

Predicting ValuationFigure 39.757075S&P 500 DIVIDEND YIELD(trailing 4-quarter sum)70Q36565Invested in 1970Invested in 1980Invested in 1990Invested in 608101214161820222426Source: Standard & Poor’s.Figure 40.1818S&P 500 DIVIDEND YIELD vs US TREASURY 10-YEAR BOND YIELD(percent)16161414Bond YieldS&P 500 Dividend Yield*1212101088664422Q30yardeni.com052 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24 26* S&P 500 four-quarter trailing dividends per share divided by quarterly closing value of the S&P 500 index.Source: Standard & Poor’s and Federal Reserve Board.Page 20 / December 12, 2021 / Chapter 14 Charts: Predicting ValuationYardeni Research, Inc.www.yardeni.com

Predicting ValuationFigure 41.70106010501040103010701060105010401030101%S&P 500 INDEX AND DIVIDEND YIELD(ratio scale)Index12/08/2120102%20103%4%5%6%Blue Angels ImpliedBy Dividend 005101520251030* Blue lines show hypothetical values of S&P 500 stock price index using actual S&P 500 dividend (4-quarter trailing sum) divided by dividend yieldsfrom 1.0% to 6.0%Source: Standard & Poor’s.Figure 0.7300.7250.7200.7150.7S&P 500 TRAILING 4-QUARTER DIVIDENDS WITH 5% TO 8% CAGR GROWTH PATHS(base period Dec 1946 0.71, ratio 0556065707580859095000510152025.730Source: Standard & Poor’s.Page 21 / December 12, 2021 / Chapter 14 Charts: Predicting ValuationYardeni Research, Inc.www.yardeni.com

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S&P 500 FORWARD EARNINGS YIELD & NOMINAL US TREASURY 10-YEAR BOND YIELD US Treasury 10-Year Bond Yield S&P 500 Forward Earnings Yield* * S&P 500 12-month forward consensus expected operating earnings divided by S&P 500 stock price index. Source: I/B/E/S data by Refinitiv and Federal Reserve Board. yardeni.com Figure 2. Predicting Valuation