Ten-year Treasuries at 5.27% now yield about as much as S&P 500 earnings

Put the S&P 500's earnings yield of about 5.3% beside the 10-year Treasury at 5.27% and the gap is about three hundredths of a percentage point ^[9][1][1]. Anyone buying the index here is taking equity risk for roughly a government bond's income ^[1]. The difference is a bet on earnings growth, and forecasters have roughly doubled their growth estimate since the start of the year ^[7][2].

The bond market's half of the growth case is the stronger one. In the Axios figures, about 92% of the past month's rise in the five-year yield came from real yields, and inflation expectations supplied the rest ^[5][3]. Jobless claims at a 57-year low point the same way ^[6].

I think the split is less conclusive than it looks. Ray Dalio, founder of Bridgewater Associates, warned that interest payments on Treasury debt have topped $1 trillion a year and that market rates could rise further as deficits and debt issuance grow ^[11]. A rise driven by bond supply would also show up as higher real yields, so the Axios numbers cannot by themselves separate a growth story from a deficit story ^[5]. U.S. jobless claims also fail to explain why Britain's 10-year gilt, at 5.44%, yields 17bp more than the Treasury ^[13][4].

Stocks have a split of their own. The index sits about 1.5% under its mid-August peak, while Goldman Sachs puts the median member's decline from its 52-week high at 16% ^[3][8]. The two figures start from different dates, so the 14.5-point gap is approximate ^[5]. It fits the second of the two views in the Seoul Economic Daily's briefing: that a handful of large-cap stocks are masking broad weakness ^[2]. The briefing does not name those stocks. It cites enthusiasm for AI investment, alongside a strong economy, as support for the market ^[2].

The 30-year Treasury yields 5.55% and the two-year 4.96%, according to the Financial Times ^[4]. Rick Rieder's 7% returns at three-year duration run about 145bp above the long bond and about 200bp above the short one ^[12][9][8]. A manager collecting that has little reason to take on 30 years of rate risk for less.

If earnings clear the 30% forecast, the median stock can close the gap with the index ^[7][8]. Dalio's version has yields climbing on deficits whatever the growth data show ^[11]. The third path runs through the leaders. If they fall first, the index drops toward where its median member already is ^[8].

In my view the bond market's growth reading is mostly right, and the index has priced it with almost nothing to spare ^[1]. Bank of America makes the counter-case with its 7% threshold, which leaves the 10-year 173bp of room before equities are shaken ^[10][6]. The view is wrong if full-year earnings growth comes in near the 15% expected at the start of the year and the index holds its level anyway ^[7].