Here's A Great 25-Year Snapshot Of Stocks Versus Bonds

Earnings yield is one way to measure equity values.  It’s the inverse of the price-earnings ratio.  Value is found when the difference between the earnings yield and the long-term Treasury yield is wide.  This valuation method is often referred to as the Fed model, although the Federal Reserve has never endorsed it.

Reuters’ Scott Barber has charted 25 years of earnings yields (based on the forward PE) against the 10 year real yield.

On a historical basis, stocks are looking really cheap relative to the 10-year note.

EquityRiskPremium

Photo: Reuters

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.