Fed Model


Fed Model

A theory used by some analysts to determine whether to buy stocks or bonds. The theory postulates that there ought to be relative equality between the yield on the S&P 500 and that of 10-year Treasury notes. If the S&P 500 yield is higher, this indicates that the S&P 500 (and by extension stocks in general) are undervalued; it is seen as a buy signal for stocks. If 10-year note returns are higher, this is seen as a buy signal for bonds. Contrary to the name, the Federal Reserve does not endorse the model.