After a review of month- and year-to-date bond, stock and commodity returns through May 28, Jeff Mayberry and Samuel Lau turn to the Question of the Week: how they form their outlooks for future bond and stock returns over the long term. While all models and indicators are subject to potential mistaken assumptions, certain metrics used thoughtfully can provide useful frameworks for setting long-term return expectations for asset classes. The co-hosts discuss such tools as Professor Robert Shiller’s cyclically adjusted price-to-earnings (CAPE) ratio for stocks, Dr. Shiller’s more recently developed excess CAPE yield, risk-free (U.S. Treasury) rates relative to inflation and, for bond investments, the yield-to-duration ratio, aka the Sherman Ratio, named after DoubleLine Deputy Chief Investment Officer Jeffrey Sherman. Although the post-Memorial Day market week of June 1 will be an abbreviated one, Messrs. Mayberry and Lau note it will be charged with significant macroeconomic releases and events: ISM manufacturing and OPEC Plus on Tuesday, ISM services on Thursday and May nonfarm payrolls and unemployment rates on Friday.
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