S&P 500 Haters Now Make Enough in Treasuries to Bid Stocks Farewell

Surging bond yields have been rattling investors for a year. Why they’re a problem for people hooked on an asset as volatile as equities can be seen by juxtaposing stocks with some of the safest securities in the world.

Treasury bills are rarely cast as a route to riches, but right now their payouts are nearly as high as a similar marker in the equity space: profits generated by S&P 500 companies. While the comparison isn’t quite apples-to-apples, it’s a model sometimes employed to get a sense of relative value across asset classes.

Specifically, six-month Treasury bills currently yield a hair below 5%, the highest since 2007. Meanwhile, the S&P 500 earnings yield clocks in at about 5.08%. The gap between them is the slimmest advantage that stocks have held since 2001.

Wrinkles like these are becoming common, upending the calculus for money managers who have watched stocks’ roaring start to 2023 with hesitation. Signs of sticky inflation and the Federal Reserve’s campaign to quell have reignited worries of a coming economic downturn, while the latest round of gloomy earnings has given the bulls little fodder.

Against that backdrop, relatively juicy yields on cash — which carries virtually zero credit or duration risk — may one day tempt the money now flowing into equities.