The stock market's skimpy returns
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Stocks are offering pretty skimpy returns when stacked up against government bonds — at least according to one key Wall Street metric.
Why it matters: The current low level of what's known as the "equity risk premium" suggests that the stock market might not be the best place to put cash to work right now.
How it works: The equity risk premium compares yields on bonds with the potential return on stocks, using something called the "earnings yield" on the S&P 500.
- Earnings yield recasts the stock market as a kind of bond, with the S&P 500's expected earnings per share over the next year against the index's current price as the "yield."
By the numbers: The earnings yield on the S&P 500 was 4.73% on Friday, when the yield on the 10-year Treasury note was 4.56%.
- So the premium — the additional return stocks offer investors compared with safe government bonds — is now under 0.20 percentage points.
- That's not a whole heck of a lot, historically speaking.
Yes, but: To be fair, the stock market looks unattractive, in part, because it has done quite well this year, with the S&P up nearly 10% so far. (Higher prices push earnings yields lower, all else equal.)
- Meanwhile, yields on Treasury bonds are up, in part, because the price of Treasuries has been falling. (Bond yields and prices move inversely.)
- In fact, stocks have been a much better bet than bonds so far in 2026, with the total return on Treasury bonds this year a negative 0.8%, according to Bloomberg Index data.
Go deeper: The Wall Street Journal published a nice piece on the equity risk premium Monday.
