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Stock prices fell last fortnight. The S&P 500, an index of big American companies, dropped 4% to 3,970. The market continues to rise from its October lows but is still 8% below where it was last year.

I value the S&P 500 at 3,788, which suggests it is fair value. My valuation has thrashed back and forth in recent months. Significant movements in bond yields and consensus estimates are to blame. Traders and analysts are uncertain about the future, which has shown up in estimates.

The companies in the index earned $1,627bn in the past year, down $31bn from last fortnight. They paid out $506bn in dividends, bought back $986bn worth of shares, and issued $71bn of equity.

The forward price-earnings (PE) ratio rose to 17.3x. My 12-month forward earnings per share (EPS) estimate for the index dropped from 244 to 229.

Government bond prices dropped. Yields, which move the opposite way to prices, rose with inflation expectations. The ten-year Treasury yield, a critical financial variable, climbed 11 basis points (bp) to 3.9%. Investors expect inflation to average 2.4% over the next decade. That's 9bp higher than the rate they expected last fortnight.

The real interest rate, the gap between yields and expected inflation, increased by 2bp to 1.5%. These inflation-adjusted rates are up over two percentage points in the past year.

Corporate bond prices also went down. Credit spreads, the extra return creditors demand to lend to a company instead of the government, rose by 6bp to 1.6%. The cost of debt, the annual return lenders expect when lending to these companies, jumped 17bp to 5.5%.

Refinancing costs have almost doubled, up 2.2 percentage points, in the past year. But they’ve been declining since they peaked in October above 6%.

The equity risk premium (ERP), the extra return investors want to buy stocks instead of bonds, fell 29bp to 4.9%. It’s now about the same as it was a year ago. The cost of equity, the total annual return these investors expect, also fell 18bp to 8.8%. These expected returns are a little above their long-term average.