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 (starts at 11:30). 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, Jeff and Sam note it will be charged with significant macroeconomic releases and events.
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