Daily Archives: Nov 17, 2023 at 07:28 am EST

Research Review | 17 November 2023 | Return Expectations

Causes of Deviations from a Real Earnings Yield Model of the Equity Premium
Austin Murphy and Zeina N. Alsalman (Oakland University)
October 2023
A market-based forecast of inflation added to equity earnings yields explains much of the variation in stock market returns over multi-year horizons. Return deviations from the prediction are found to be negatively related to the current inflation rate (output gap) over annual (all) horizons. Existing inflation is discovered to be positively (negatively) associated with future higher interest rates (real money supply and long-term profit growth). However, long-term inflationary expectations are positively correlated with long-term real future profit growth and stock returns. These results support the hypothesis of equity returns being positively (negatively) related to inflation (countercyclical anti-inflationary policies).

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Macro Briefing: 17 November 2023

* US soft landing for economy possible, says Fed Governor Lisa Cook
* Fed may cut rates as soon as March: Wharton professor Jeremy Siegel
* Avoiding China has been a winning strategy for emerging-markets investing
* Industrial production fell in October, driven lower by worker strikes
* US homebuilder sentiment in November drops to 11-month low
* US jobless claims rise to three-month high:

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