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Chart of the Week: Stock versus Bond Yield

Posted By Barry Ritholtz On January 10, 2005 @ 11:06 am In Markets | Comments Disabled

Despite the increase in stock prices since the summer, equities now look even cheaper against corporates, due to the strength in the corporate bond market, according to Brian Reynolds [1]. The ratio of stock yield versus corp bond yield on 8/04 had stretched valuation measures between them to the widest levels since after the ’87 crash (using a Fed model variation), Reynolds says.

Stocks versus Bond Yield

click for larger chart

Stock_yield_as_a_percentage_of_bond_yiel [2]

source: MS Howell & Co. [1]


He cautions, however, that cheap looking equities are no guarantee of price rises. The wide swings in these series reveal little correlation between stocks and bond yields. Wide disparities in valuations can reveal when buyers are becoming too aggressive in one asset class or the other.


Random Items:

Seeking the Unfairly Undervalued [3]

Two Big Reasons to Stay Bullish on Stocks in 2005 [4] (for balance)

Love, Hate and Mutual Funds [5]

Newspapers Baffled by Declines [6]

You may be a bad driver and not know it [7] 

Everything You Always Wanted To Know About Sleep [8]


Quote of the Day:

“When everybody starts looking really smart, and not realizing that a lot of it was luck, I get scared.”       -Raphael Yavneh

Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2005/01/chart-of-the-week-stock-versus-bond-yield/

URLs in this post:

[1] Brian Reynolds: http://www.capmarketsinfo.com/ViewFile.asp?ID1=21406&ID2=36691801&ssid=1&directory=6571&filename=EquitiesStill_Cheap_1.10.2005.pdf

[2] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/stock_yield_as_a_percentage_of_bond_yiel.jpg

[3] Seeking the Unfairly Undervalued: http://www.washingtonpost.com/ac2/wp-dyn/A58309-2005Jan8?language=printer

[4] Two Big Reasons to Stay Bullish on Stocks in 2005: http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_currier&sid=atswfFRWeYQc

[5] Love, Hate and Mutual Funds: http://biz.yahoo.com/rb/050109/column_funds_2.html

[6] Newspapers Baffled by Declines: http://www.pcmag.com/article2/0,1759,1747313,00.asp

[7] You may be a bad driver and not know it: http://moneycentral.msn.com/content/Insurance/Insureyourcar/P105598.asp

[8] Everything You Always Wanted To Know About Sleep: http://circadiana.blogspot.com/2005/01/everything-you-always-wanted-to-know.html

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