Yardeni Research Estimates S&P 500 Fair Value at 8,300

Yardeni Research reports that the Federal Reserve's stock valuation model is regaining relevance as U.S. Treasury yields return to historical norms following the end of quantitative easing. The model calculates stock value by comparing the forward earnings yield of the S&P 500 against the 10-year U.S. Treasury yield.

With the 10-year yield recently at 4.68%, the firm estimates the fair value of the S&P 500 at approximately 8,300, indicating the index is currently slightly undervalued. However, the research firm warns that a rise in the 10-year yield above 5% would increase risks for equities by lowering the fair-value earnings multiple.

Broader economic pressures include persistent inflation and escalating government debt. U.S. public debt has reached $40 trillion, while annual net Treasury interest costs have hit a record $1.1 trillion.