Chapter 14 Charts: Predicting Valuation · STOCK VALUATION MODEL (using US Treasury 10-year bond...

Predicting the MarketsChapter 14 Charts:

Predicting ValuationYardeni Research, Inc.

February 13, 2020

Dr. Edward YardeniChief Investment Strategist

Mali QuintanaSenior Economist

[email protected]

Please visit our sites atwww.yardeni.comblog.yardeni.com

thinking outside the box

Table Of Contents Table Of ContentsTable Of Contents

February 13, 2020 / Chapter 14 Charts: Predicting Valuation www.yardeni.com

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Predicting Valuation 1-21

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 21 225

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25

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Jan

FORWARD P/E RATIOS FOR S&P 500 STOCK PRICE INDEX*

Forward P/EsS&P 500S&P 500 Technology

* 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.

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Figure 1.

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 21 221

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Jan

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S&P 500 FORWARD EARNINGS YIELD & NOMINAL US TREASURY 10-YEAR BOND YIELD

US Treasury 10-Year Bond YieldS&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.

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Figure 2.

Predicting Valuation

Page 1 / February 13, 2020 / Chapter 14 Charts: Predicting Valuation www.yardeni.com


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 2275

1525

2975

4425

5875732587751022511675

75

1525

2975

4425

587573258775

1022511675

Jan

JanSTOCK VALUATION MODEL (using US Treasury 10-year bond yield)(ratio scale)

S&P 500 Fair-Value Price*S&P 500 Stock Price Index

* S&P 500 12-month forward consensus expected operating earnings divided by US Treasury 10-year bond yield.Source: I/B/E/S data by Refinitiv, Standard & Poor’s, and Federal Reserve Board.

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Figure 3.

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 22-100

-50

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-50

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100

Jan

STOCK VALUATION MODEL (using US Treasury 10-year bond yield)*(percent overvalued or undervalued)

Overvalued

Undervalued

* S&P 500 stock price index divided by S&P 500 fair-value price defined as S&P 500 12-month forward consensus expected operating earningsdivided by 10-year US Treasury bond yield converted to percentage.Source: I/B/E/S data by Refinitiv, Standard & Poor’s, and Federal Reserve Board.

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Figure 4.




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 21 228

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Jan

S&P 500 LONG-TERM CONSENSUS EXPECTED EARNINGS GROWTH (LTEG)*(percent annual rate)

* LTEG is 5-year forward consensus expected earnings growth.Source: I/B/E/S data by Refinitiv.

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Figure 5.

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 21 228

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Jan

S&P 500 LONG-TERM CONSENSUS EXPECTED EARNINGS GROWTH(percent annual rate)

LTEG*S&P 500 (10.3)S&P 500 Information Technology (13.0)

* LTEG is five-year forward consensus expected earnings growth.Source: I/B/E/S data by Refinitiv.

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Figure 6.




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 21 220

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Jan

CORPORATE BOND YIELDS (percent)

Corporate Bond Yields*

Average Corporate Yield

AAA Corporate Bond YieldA-BBB Corporate Bond Yield

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* Moody’s data for Aaa and Baa yields through 1996, then ICE Bofa Merrill Lynch data for AAA and BBB yields.Source: Federal Reserve Board and Haver Analytics.

Figure 7.

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 22 240

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YIELD SPREAD*: CORPORATE & US TREASURY 10-YEAR BOND(basis points)

Jan

* Corporate bond yield is average of Moody’s Aaa and Baa yields through 1996, then average of ICE Bofa Merrill Lynch data for AAA and BBB yields.Note: Shaded areas denote recessions according to the National Bureau of Economic Research.Source: Federal Reserve Board and Haver Analytics.

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Figure 8.




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 23 240

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2/7

S&P 500 FORWARD EARNINGS YIELD & CORPORATE BOND YIELD

Corporate 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.** Corporate bond yield is average of Moody’s Aaa and Baa yields through 1996, then ICE Bofa Merrill Lynch data for AAA and BBB yields.

Source: I/B/E/S data by Refinitiv, Standard & Poor’s, Federal Reserve Board, and Haver Analytics.

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Figure 9.

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 23 240

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Jan

x0.0

x0.1

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S&P 500 FORWARD EARNINGS YIELD & CORPORATE BOND YIELD

Corporate Bond Yield Less LTEGWeighted by 0.0, 0.1, and 0.2**

S&P 500 Forward Earnings Yield*

* S&P 500 12-month forward consensus expected operating earnings divided by S&P 500 stock price index.** Corporate bond yield (average of Moody’s Aaa and Baa yields through 1996, then average of ICE Bofa Merrill Lynch data for AAA and BBB yields)

less analysts’ consensus of S&P 500 long-term earnings growth.Source: I/B/E/S data by Refinitiv, Standard & Poor’s, Federal Reserve Board, and Haver Analytics.

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Figure 10.




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 2475

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2175

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53256375

Jan

JanSTOCK VALUATION MODEL (using corporate bond yield)(ratio scale)

S&P 500 Stock Price IndexS&P 500 Fair-Value Price*

* S&P 500 forward consensus expected operating earnings divided by corporate bond yield (average of Moody’s Aaa and Baa yields through 1996,then average of ICE Bofa Merrill Lynch data for AAA and A-BBB yields).Source: I/B/E/S data by Refinitiv, Standard & Poor’s, Federal Reserve Board, and Haver Analytics.

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Figure 11.

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 22-100

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Jan

Jan

FED’S STOCK VALUATION MODEL(percent overvalued or undervalued)

Percentage S&P 500 Over/UnderValued Relative to Fair Value

Using Treasury Bond Yield*Using Corporate Bond Yield**

* S&P 500 12-month forward consensus expected operating earnings divided by 10-year US Treasury bond yield converted to percentage.** S&P 500 12-month forward consensus expected operating earnings divided by corporate bond yield (using average of Moody’s Aaa and Baa yields

through 1996, then average of ICE Bofa Merrill Lynch data for AAA and A-BBB yields) converted to percentage.Source: I/B/E/S data by Refinitiv, Standard & Poor’s, Federal Reserve Board, and Haver Analytics.

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Figure 12.




1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 20213

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S&P 500 FORWARD EARNINGS YIELD & CORPORATE BOND YIELD(percent)

Corporate Bond Yield*S&P 500 Forward Earnings Yield**

* Corporate bond yield is average of Moody’s Aaa and Baa yields through 1996, then average of ICE BoFA Merrill Lynch data for AAA and A-BBB yields.** 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, Standard & Poor’s, Federal Reserve Board, and Haver Analytics.

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Figure 13.

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 20200

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Q3

S&P 500 BUYBACKS(billion dollars, annualized)

Source: Standard & Poor’s.

yard

eni.c

om

Figure 14.




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 22-2

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Jan

S&P 500 EARNINGS YIELD & REAL BOND YIELD

Real US Treasury 10-Year Yield*S&P 500 Forward Earnings Yield**10-Year TIPS Yield(weekly)

* US Treasury 10-year bond yield minus median expected CPI inflation rate for next 10 Years using Philadelphia Fed Survey of Professional Forecastersdata (monthly series interpolated from quarterly data starting as two quarters per year during Q4-1979 until Q4-1991 when the data continuewith four quarters a year).

** S&P 500 12-month forward consensus operating earnings divided by S&P 500 stock price index.Source: Federal Reserve Board, US Treasury, I/B/E/S data by Refinitiv, and Federal Reserve Bank of Philadelphia.

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Figure 15.

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 21 220

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DecAverage = 5.0

S&P 500 EARNINGS RISK PREMIUM*(percent)

* S&P 500 forward earnings yield minus the real interest rate defined as the nominal 10-year Treasury yield minus median expected CPI inflation ratefor next 10 years using Philadelphia Fed Survey of Professional Forecasters data (monthly series interpolated from quarterly data starting astwo quarters per year during Q4-1979 until Q4-1991 when the data continue with four quarters a year).Source: Federal Reserve Board, US Treasury, I/B/E/S data by Refinitiv, Standard & Poor’s, and Federal Reserve Bank of Philadelphia.

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Figure 16.




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 21 220

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Jan

EXPECTED INFLATION: SURVEY OF PROFESSIONAL FORECASTERS

CPI: Ex Food & Energy(yearly percent change)

Professional Forecasters*

* Median forecast of year-over-year CPI inflation rate over the next 10 years using Philadelphia Fed Survey of Professional Forecasters data.Source: Bureau of Labor Statistics and Federal Reserve Bank of Philadelphia.

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Figure 17.

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022.0

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Q4

MEASURES OF EXPECTED INFLATION(percent)

Expected Inflation

10-Year TIPS**Professional Forecasters*

Source: Federal Reserve Board and Federal Reserve Bank of Philadelphia.** Nominal US Treasury 10-year minus 10-year TIPS yields.* Median forecast of year-over-year CPI inflation rate over the next 10 years using Philadelphia Fed Survey of Professional Forecasters data.

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Figure 18.




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 21 228

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Q3Jan

S&P 500 P/E RATIOS

S&P 500 P/EsTrailing (using operating earnings)*Forward**

* 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.

yardeni.com

Figure 19.

78 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 21 225

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Jan

Q3

S&P 500 P/E RATIOS

S&P 500 P/EsTrailing(using reported earnings)*Forward**

Capped at 45due to extreme values

* 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.

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Figure 20.




35 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 21 235

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Q3

S&P 500 P/E BASED ON TRAILING EARNINGS*

Average = 16.1

Capped at 30 due to extreme values

* Using quarterly average of monthly data for S&P 500 price index and 4-quarter trailing reported earnings.Source: Standard & Poor’s.

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Figure 21.

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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 22.6

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Jan

S&P 500 INDEX

S&P 500 PEG RATIO

P/E*LTEG**

PEG***

* 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.

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Figure 22.




2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022.7

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2/6

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* 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.

S&P 500 VALUATION MEASURES(weekly)

Forward P/E*

Forward P/S**

Figure 23.

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 24.0

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Q3

STOCK MARKET CAPITALIZATION RATIOS

Q3

S&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)

Note: Shaded red areas denote 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.

yardeni.com

Figure 24.




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 22.5

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STOCK MARKET CAPITALIZATION RATIO& S&P 500 PRICE-TO-SALES-RATIO

Q3

2/6

US Equity Market CapitalizationEx Foreign Issues*(as a ratio of nominal GNP)Forward P/S**

* Total excluding market value of holdings by US residents of foreign corporate equities, investment fund shares, and ADRs.

Source: Federal Reserve Board, Financial Accounts of the United States, Bureau of Economic Analysis, and Standard & Poor’s.

** 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 denote S&P 500 bear market declines of 20% or more. Yellow areas show bull markets.

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Figure 25.

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 24.0

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Tobin’s Q & STOCK MARKET CAPITALIZATION RATIO

Q3Tobin’s Adjusted q* for Nonfinancial CorporationsUS Equity Market Capitalization Ex Foreign Issues(as a ratio of nominal GNP)

* Actual divided by average since 1952.Note: Shaded red areas denote 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.

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Figure 26.




35 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 25-5

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Jan

S&P 500 P/E BASED ON TRAILING EARNINGS vs CPI

Trailing P/E*CPI(yearly percent change)

* 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.

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Figure 27.

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 23 250

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Jan

S&P 500 P/E BASED ON TRAILING EARNINGS vs US TREASURY 10-YEAR BOND YIELD

Trailing P/E*10-Year Bond Yield(percent)

* 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.

yardeni.com

Figure 28.




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 23 250

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Jan

S&P 500 EARNINGS YIELD vs US TREASURY 10-YEAR BOND YIELD(percent)

S&P 500 Earnings Yield*10-Year Bond Yield

* 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.

yardeni.com

Figure 29.

35 40 45 50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 25-5

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S&P 500 REPORTED EARNINGS YIELD*vs CPI INFLATION RATE**

S&P 500 Earnings YieldCPI Inflation Rate

* 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.

yardeni.com

Figure 30.




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 24-3

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S&P 500 REPORTED EARNINGS YIELD* MINUS CPI INFLATION RATE**

Q3

Average 3.3

* 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 denote S&P 500 bear market declines of 20% or more. Yellow areas show bull markets.Source: Standard & Poor’s and Bureau of Labor Statistics.

yardeni.com

Figure 31.

78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 224

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RULE OF 20: S&P 500 FORWARD P/E vs 20 MINUS CPI INFLATION RATE

Jan

20 Minus CPI Inflation Rate*

S&P 500 Forward P/E**

* 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 denote 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.

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Figure 32.




78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 2210

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RULE OF 20: S&P 500 FORWARD P/E PLUS CPI INFLATION*

Jan

* 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.

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Figure 33.

78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 225

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Jan

Jan

FORWARD PE RATIO FOR S&P 500 vs MISERY INDEX

Misery Index*S&P 500 Forward P/E**

* Unemployment rate plus yearly percent change in consumer price index.

Source: I/B/E/S data by Refinitiv, Standard & Poor’s, and Bureau of Labor Statistics.** Price divided by 12-month forward consensus expected operating earnings per share.

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Figure 34.




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 22 242

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MISERY INDEX* & STOCK MARKET CYCLE(percent)

Jan

* Unemployment rate plus yearly percent change in consumer price index.Note: Shaded red areas denote S&P 500 bear market declines of 20% or more. Yellow areas show bull markets.Source: Bureau of Labor Statistics.

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Figure 35.

78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 2215

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S&P 500 FORWARD P/E* PLUS MISERY INDEX**

Jan

Average = 23.9

** Unemployment rate plus yearly percent change in consumer price index.

Source: Bureau of Labor Statistics, Standard & Poor’s, and I/B/E/S data by Refinitiv.

* Average monthly S&P 500 stock price index divided by S&P 500 12-month forward consensus expected operating earnings per share.

Note: Bear markets are declines of 20% or more (in red shades).

yardeni.com

Figure 36.




46 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 2420

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Q3

S&P DIVIDEND PAYOUT RATIO*(percent)

S&P 500S&P Industrials Composite

* 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.

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Figure 37.

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 2265

70

75

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2019

S&P 500 COMPANIES PAYING A DIVIDEND(percent of total)


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Figure 38.




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 20 220

5

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0

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70Q4S&P 500 DIVIDEND YIELD

(trailing 4-quarter sum)

Invested in 1970Invested in 1980Invested in 1990Invested in 2000


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Figure 39.

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 22 240

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Q4

S&P 500 DIVIDEND YIELD vs US TREASURY 10-YEAR BOND YIELD(percent)

Bond YieldS&P 500 Dividend Yield*

* 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.

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Figure 40.




45 50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 2510

1010

2010

30104010501060107010

10

1010

2010

30104010501060107010

1%

2%

3% 4% 5% 6%

S&P 500 INDEX AND DIVIDEND YIELD(ratio scale)

S&P 500 Index02/12/20

Blue Angels Implied Dividend Yield*

* 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.

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Figure 41.

45 50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 25.7

50.7

100.7

150.7

200.7250.7300.7350.7

.7

50.7

100.7

150.7

200.7250.7300.7350.7

Q4

S&P 500 TRAILING 4-QUARTER DIVIDENDS WITH 5% TO 8% CAGR GROWTH PATHS(base period Dec 1946 = 0.71, ratio scale)

5%

6%

7%

8%

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Figure 42.




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