Stocks vs. Bonds

I always keep an eye on the difference between the stock and bond markets, which made me more and more sick of the so called efficient market hypothesis.

an indicator I often look at is S&P500 earnings yield versus Moody’s AAA Corp Bonds. When I last looked, in late July, the S&P500 earnings yield (based on last 4 quarters reported earnings) was 5.35% versus AAA at 4.76%. Or just another way of saying that stocks may offer more value than fixed income at this point.

Here are Mike Santoli’s reminders this morning in Barron’s:

“It’s for good reason the stock market was dubbed “the bond market’s idiot kid brother.”
Mike also points out an interesting data point regarding the Industrial’s dividend yield:

“Telling a similar story in a different way, the dividend yield of the Dow Jones Industrial Average components, at 2.65%, is essentially equal to the 10-year Treasury yield. The folks at Morgan Stanley note that over the past 50 years the Dow’s yield has exceeded that of the 10-year Treasury for only one period—the end of 2008 into early 2009, as the financial crisis climaxed.”