Thinking Actuary

Equity risk sentiment (ERS) is a metric used to assess how expensive equities are relative to the level of interest rates.  To calculate ERS all that's needed is the current equity price level in the form of the cyclically adjusted price earnings or CAPE ratio and the 10-year Treasury yield.  The current level of CAPE can be found on another website here and the current 10-year Treasury yield can be found on the same website here.  ERS is a powerful return forecasting tool and the results below may be helpful in planning.  Of course, forecasting future equity returns precisely is not possible - see the out of sample forecast results here.  Also, much more detail about ERS is provided in this working paper.