| Valuation Component | Unrevised (Fed Model) | Bokobza Upgraded | Delta |
|---|---|---|---|
| Forward EPS | $245.00 | $280.53 | +$35.53 |
| Forward Price / Earnings (P/E) | 23.67x | 20.67x | -3.00x |
| Equity Earnings Yield (E/P) | 4.22% | 4.83% | +0.61% |
| 10-Year Benchmark Yield | 4.65% | 4.65% | 0 bps |
| Net Equity Risk Premium (ERP) | -0.43% | +0.18% | +61 bps |
The Core Dilemma: Traditional Fed model valuations compute ERP simply as unrevised Earnings Yield minus 10-Year Treasury Yield. At current rate regimes ($4.65\%$), an unrevised $\$245$ EPS delivers only a $4.22\%$ earnings yield, yielding a negative risk premium of $-43\text{ bps}$.
The Bokobza Cushion: As highlighted by Alain Bokobza at Societe Generale, consensus analysts have systematically ratcheted up forward earnings expectations ($+14.5\%$). This expands the numerator to $\$280.53$, pulling the earnings yield up to $4.83\%$ and creating an immediate $+61\text{ bps}$ buffer.
When yields increase by $50\text{ bps}$, equity valuations can remain stable without index multiple compression if forward revision momentum keeps pacing nominal yield growth.