Credit Calculus Turns Against Stocks With Yield Edge Over Bonds Vanishing
- Earnings yield trails bond rates for first time in 12 years
- Bulls point to inflation as reason for lower equity premium
This article is for subscribers only.
A valuation bulwark that had supported stocks relative to credit is starting to erode.
The model compares profit streams with interest rates. It shows the S&P 500’s earnings yield, the reciprocal of its price-earnings ratio, at around 5% now trails the rate from a lower tier of 10-year investment-grade bonds for the first time in more than a decade, according to Morgan Stanley data.