S&P 500 Earnings Yield Falls Below 30-Year Treasury, Stock Risk Premium Turns Negative

According to Barron's on Monday (July 20), the S&P 500's earnings yield fell to 4.95%, dropping below the 30-year U.S. Treasury yield of 5.07%, pushing the stock risk premium into negative territory at -0.12 percentage points on Friday. This marks the lowest risk premium since July 2007, occurring in less than 6.4% of trading days over that period.

The 30-year Treasury real yield climbed to 2.91% as of Thursday, the highest since 2008, according to economists at Rosenberg Research, the stock risk premium is now "razor-thin" by historical standards. The rise in real yields reflects concerns about sustained fiscal deficits and potential inflation persistence, making bonds relatively more attractive compared to equities.