Market valuation

10-Year Treasury Note vs. S&P 500 Forward Earnings Yield
This measures market valuation by analyzing where money is considered being treated the best by the financial markets. The S&P 500 Forward Earnings Yield is the consensus earnings estimates expected for the next 12 months divided by the S&P 500 price index. Then a simple comparison can be made to help determine whether stocks or bonds are more attractive at any particular point in time.

IBES Valuation Model
This valuation gauge was developed by IBES (Institutional Broker Estimate Survey). It compares the earnings yield (earnings/price x 100) of the S&P 500 based on its current level and the 12-month forward earnings estimate, to the current yield of the 10-year Treasury note. Over several decades these parameters have closely tracked each other. When one strays, it produces either over- or under-valued conditions for the appropriate item. The graphs are marked with the specific zones used to determine the relative attractiveness of bonds versus stocks. The vertical axis is the percentage stocks are overvalued or undervalued according to this valuation gauge.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Treasury notes are intermediate-term (one to 10 years) interest-bearing debt of the U.S. Treasury.