Current Update of Fed Model, from Alex Castaldo

2008-10-09 · Alex Castaldo
Original source

SPX = 1000
Estimated Earnings = 97.74
=> earn yield 9.77%

10-yr Treasury Yield = 3.65%

=> spread 6.12%

=> SPX fair value = 2676 = earnings/10-yr

=> undervaluation -62.64%

=> expected return = 33.74% = 0.082 + 4.172 * spread

The model is forecasting a one year return of approximately 34%.