Fed Trading Model

Ben Emons

By Farther

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In 1997, Greenspan said in the Humprey Hawkins speech, “The decline of real (inflation-adjusted) long-term interest rates that has occurred in the last two decades has been associated with rising price-to-earnings ratios for stocks, real estate, and, in fact, all income-earnings assets. ”

It became known as the “Fed model,” coined by Ed Yardeni. Over time, the model shows that the inverse of the stock PE ratio, aka the earnings yield, runs inversely to the Treasury PE ratio (the inverse of the Treasury yield).

When the equity PE ratio rises above the Treasury PE ratio, it is a period of high real rates of return. Conversely, when the PE ratio falls below that of the Treasury, long-term real rates of return decline. This version of the Fed model attempts to address the valuation of stocks and bonds relatively. But what the model misses is the Fed’s expectations of significant influence on real interest rates and asset valuations.

FedWatch created a “Fed trading model,” a systematic, AI-LLM driven model focused on the Fed expectations incorporated in the FedWatch RSI indicator to derive actionable, tactical weightings between stocks and bonds in 60/40 portfolios.

Ben Emons

,

Managing Director

With nearly three decades of experience in portfolio management and investment strategy, Ben brings a unique combination of an institutional perspective with a personal touch to each of his clients. He enjoys working closely with high-net-worth individuals, family offices, and institutions to create thoughtful, research-driven investment strategies.In 2020, Ben founded FedWatch Advisors: a quantitative investment firm that translates Federal Reserve communications into real-time, actionable signals using large language models. He previously served as Managing Director of Global Macro Strategy at Medley Global Advisors, where he regularly engaged with Federal Reserve officials and staff on policy and market trends.Earlier in his career, Ben held portfolio management and strategy roles at PIMCO, Nuveen Investments, NewEdge Wealth, and Intellectus Partners. His work spans systematic investing, macroeconomic analysis, and global asset allocation.Ben holds an MBA from the University of Southern California’s Marshall School of Business and a master’s degree in international finance from the University of Amsterdam. He is a frequent contributor on market insights across CNBC, Bloomberg, CNN, Schwab Network, ICE, NYSE, and RTHK radio.

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