S&P 500 Yield Exceeds 10 Year US Treasury Yield

This is probably something that a lot of people are going to be talking about over the next few days. I’d be shocked if Barrons doesn’t have a piece on it this weekend.  This week, the $SPX yield exceeded the yield on the 10 year Treasury*.  Here’s a 20+ year chart of the ratio of the two yields:

S&P 500 Yield vs 10 Year US Treasury Yield - Ratio


My interpretation of this chart is that stocks are starting to look cheap RELATIVE to bonds.  Notice how I put “relative” in  bold, caps and underline – this does not mean that stocks are cheap on an absolute basis – rather, simply that for investors with longer term horizons, stocks are getting to be more appealing than bonds – if they weren’t already.

For example, I’m not exactly bullish on stocks, but if I were going to go to Mars for 10 years, a la Arnold Schwarzenegger in Total Recall, and I wouldn’t be able to trade for that duration, I’d park my money in stocks at these levels, not bonds.

A buddy helped me produce this next chart too, which adds the $SPX chart overlayed onto the dividend ratio chart:

SPX & SPX/UST10yr Dividend Yield Ratio

As this chart shows, just because stocks are cheap relative to bonds does not mean that they cannot get cheaper – as was the case in early 2008.


* By the time I was able to create this chart, the SPX’s yield had slipped slightly below the yield of the 10 year.   You can get still the gist of the theme: bond valuations relative to stock valuations are getting stretched


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