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Using the Greenspan model as an equity valuation tool, is now a good time to buy...

Using the Greenspan model as an equity valuation tool, is now a good time to buy stocks? Why or why not?

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Answer #1

As per the Greenspan model of equity valuation, stocks are undervalued if the earnings yield is higher than the 10-year Treasury bond yield, and stocks are overvalued if the earnings yield is lower than the 10-year Treasury bond yield.

Earnings yield = 1 / PE ratio

Current PE ratio of S&P 500 = 23.16

Current earnings yield of S&P 500 = 1 /  23.16 = 4.32%

Current 10-year Treasury yield = 0.64%

Therefore, stocks are currently undervalued. It is a good time to buy stocks

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