What the “earnings yield” is telling us about the stock market now

Dear Reader,

Good morning!

Happy Wednesday.

Today I want to talk about a very important barometer of where we stand in the stock market: the earnings yield.

The earnings yield measures how much profit a company generates for each dollar invested in its shares.

And right now, that yield is 4.4%.

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Now, what professional investors do is compare the earnings yield on the S&P 500 to what they’d get on 10-year treasuries.

The current yield on the 10-year is 4.588%.

That basically tells you that 10-year treasuries right now are a better investment than the stock market.

And this hasn’t been the case since right before the dot-com crash.

This is yet another warning sign – a big one.

Earnings yields this low have only happened a few times in modern history.

The typical ratio is 5.5% to 6%. There’s normally a much bigger gap between what you’d get paid to own the S&P 500 and what you’d get on 10-year bonds.

Now, it’s important to understand that when investors look at their investment options and say, okay, I can buy the S&P 500 and get a 4.4% earnings yield…

Or, I could take my money and buy 10-year U.S. treasury bonds and get 4.588%…

It makes bonds look more attractive.

Now, I hunt for individual stocks all the time.

I find discrepancies in the market where we can profit.

But when you think about big money managers – folks managing tens or hundreds of billions, even trillions of dollars these days…

They’re buying index funds. A lot of them.

And when you see index funds looking like this you say, “the S&P 500 ain’t where the action is.”

You might as well buy 10-year treasuries.

It’s safer, a better bet than the stock market.

That really harkens back to the cross currents we’re seeing here in the market…

We’re seeing a market that hasn’t been this overvalued since right before the dot-com crash.

We know we’re in an expensive market.

But like I always say, we have to play the ball where it is, not where we want it to be.

People can do stupid things for a very long period of time.

That’s just human nature.

Individuals may be very smart…

But humans in a crowd, when there’s money on the line, can do stupid things from time to time.

And this is probably one of those times.

So I wanted to share with you this new warning sign, and show you how professional investors view things so you can think about this with your own investments.

This just happened, where the equity risk premium to own stocks has disappeared, for the very first time since the dot-com bubble.

So as I always say, play it safe out there, and I’ll see you tomorrow.

“The Buck Stops Here,”

P.S. Our next “Income Alert” will be issued Tomorrow at 2PM est sharp…

To claim your piece of the $8 billion Big Pharma is legally obligated to pay out

…make sure you go here now to get on the list.

But you have to get in now to be on our distribution list.

If you’re too late, you’ll see a “Membership Closed!” notice and will not be allowed in.

Get on the list before it closes >>>

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