The SGI Fed Model US is based on an equity-bond relative valuation model including:
- An equity valuation indicator, given by the earnings to price (E/P). The higher the E/P, the more attractive the equity valuation is.
- A bond valuation indicator, given by the nominal bond yield (BY). The allocation is determined according to the average historical difference between the inverse of the 12-month-forward price-to-earnings forecast and the market price of the generic 10-year Treasury bond.
- When the average spread is equal to or greater than 0.3%, the SGI Fed Model is fully exposed to equity market.
- When the average spread is equal to or less than -0.3%, the SGI Fed Model is fully exposed to the bond market.
- When the average spread is between -0.3% and 0.3% the SGI Fed Model is exposed to both equity and bond markets, with the allocation based on a linear function of the average spread.