Original Research 2026

Earnings Yield vs Bond Yield

Comparing S&P 500 earnings yields to the 10-year Treasury to determine if stocks are fairly valued or if bonds are more attractive.

S&P 500 Earnings Yield
3.45%
Inverse of P/E (28.95)
10-Year Treasury Yield
4.15%
Risk-Free Rate Benchmark
Equity Risk Premium
-0.70%
Earnings Yield minus 10-Yr Treasury

Currently, the S&P 500 is trading at a P/E ratio of 28.95, which translates to an earnings yield of 3.45%. Meanwhile, the 10-year Treasury note yields 4.15%. This creates an Equity Risk Premium (ERP) of -0.70%, meaning that investors are being compensated 0.70% less to hold equities over risk-free bonds. Historically, a negative ERP has signaled that bonds may be a safer and more attractive bet than stocks.

GICS Sector Breakdown vs Bonds

Sector P/E Ratio Earnings Yield Sector ERP (vs 10yr)
Information Technology 36.20 2.76% -1.39%
Health Care 25.13 3.98% -0.17%
Financials 17.46 5.73% +1.58%
Consumer Discretionary 30.43 3.29% -0.86%
Communication Services 18.24 5.48% +1.33%
Industrials 29.37 3.40% -0.75%
Consumer Staples 24.47 4.09% -0.06%
Energy 20.66 4.84% +0.69%
Real Estate 33.00 3.03% -1.12%
Utilities 20.78 4.81% +0.66%
Materials 23.35 4.28% +0.13%

Historical Equity Risk Premium (2016-2026)

Year S&P 500 Earnings Yield 10-Year Treasury Yield Equity Risk Premium
2026 3.38% 4.21% -0.83%
2025 3.55% 4.63% -1.08%
2024 4.00% 4.06% -0.06%
2023 4.38% 3.53% +0.85%
2022 4.33% 1.76% +2.57%
2021 2.78% 1.08% +1.70%
2020 4.02% 1.76% +2.26%
2019 5.10% 2.71% +2.39%
2018 4.01% 2.58% +1.43%
2017 4.24% 2.43% +1.81%
2016 4.51% 2.09% +2.42%

Frequently Asked Questions

What is the equity risk premium?
The equity risk premium (ERP) is the excess return that investing in the stock market provides over a risk-free rate, such as government bonds. In this study, we calculate it by subtracting the 10-year Treasury yield from the S&P 500 earnings yield.
Is the stock market overvalued compared to bonds?
When the equity risk premium is negative, it implies that stocks are expensive relative to the yield you can get from "risk-free" government bonds. Currently, the ERP is -0.70%, suggesting that bonds might be more attractive than equities right now.
What is earnings yield?
Earnings yield is the inverse of the Price-to-Earnings (P/E) ratio. It shows the percentage of a company's earnings per share relative to its stock price. For example, a P/E ratio of 20 equals an earnings yield of 5% (1 / 20 = 0.05).
What does a negative equity risk premium mean?
A negative equity risk premium means that the earnings yield of the stock market is lower than the yield on risk-free government bonds. This often happens in late-stage bull markets or periods of high inflation when interest rates rise significantly. It indicates that investors are taking on stock market risk without being adequately compensated with higher yields.
Should I buy bonds or stocks in 2026?
While Westmount Research does not provide investment advice, current data shows that the 10-year Treasury yields 4.15%, while the S&P 500 earnings yield is 3.45%. Many analysts suggest shifting a portion of portfolios toward fixed income when the ERP compresses or turns negative.
Methodology: We utilize S&P 500 Historical P/E and Earnings Yield data aggregated by multpl.com, which calculates the earnings yield as the trailing twelve month (TTM) earnings divided by the index price. Treasury yields are sourced directly from Federal Reserve Economic Data (FRED) and historical archives. Sector P/E ratios are estimated using trailing P/E ratios of representative SPDR ETFs (e.g., XLK, XLV, XLF) via Yahoo Finance API. All calculations are real-time snapshots or 1st of year historical figures.