With the S&P 500 at 1065.49, its yield currently stands at 5.63%, based on an average of its five-year trailing earnings. Although the spread has narrowed, it still enjoys a 2.24% yield advantage over the 3.39% yield of the 10-year U.S. Treasury. This compares favorably to past bear market lows.
Although the price to earnings ratio of the S&P 500 is not cheap by historical standards, the S&P 500 still enjoys a yield advantage over government bonds owing to low interest rates. For now, this may give stocks room to move higher, although, at some point, interest rates will probably go higher, if the recovery is solid. Notwithstanding the fundamentals, sentiment could continue to drive the market well beyond what the fundamentals can justify, if those left on the sidelines during the first half’s massive rally choose to chase stocks.
Focus on the valuation of your holdings, not price levels. Think carefully about risk and how your portfolio is positioned.
Here is the data.