Capital Markets: Observations and Insights

​ The Search for Yield

YIELD

Stocks Are Cheap Relative to Bonds

• Historically, the “earnings yield” of equities (inverse of the P/E) has been just modestly above 10-year Treasury yields • Since the Global Financial Crisis, however, that spread has widened out and has yet to normalize, making equities attractive relative to bonds

S&P 500 EPS Yield

Treasury Bond Yield

16%

14%

12%

10%

8%

Spread of ~400bps indicates stocks are attractive relative to bonds

6%

4%

2%

0%

1958

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

2010

2014

2018

Source: FactSet, Federal Reserve, and S&P, as of 6/30/19.

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