Blog: The Fed Model says the market's overvalued. So what?

With the US stock market hitting new highs, a number of analysts have noticed that 10 year Treasury Note yields are now higher than the earnings yield on stocks. In the 1990s the relationship between the two was discussed by then Fed Chairman, Alan Greenspan and has since been dubbed "the Fed Model" though it's not clear that the Fed actually uses it for anything.

But the relationship is widely seen as a predictor of stock returns. I used it myself for many years. But by itself, I found that its not that reliable. So in this blog I will show a little evidence of that conclusion and compare it to my Market Uncertainty State Indicator.