Equity risk premium today: are stocks cheap or expensive versus Treasury bonds?
As of October 26, 2026, the S&P 500's earnings yield is 3.80% (a P/E of 26.4) while the 10-year Treasury pays 5.00%, so stocks yield 1.20 percentage points less than a risk-free bond: the equity risk premium is -1.20. Turned into a P/E, the 10-year Treasury is 20.0 and the 3-month bill 24.7. Against inflation-protected Treasuries (2.66%) the premium is +1.14.
Stocks as of October 27, 2026 (Robert Shiller's data via multpl.com); Treasury yields as of October 26, 2026 (FRED). Refreshed weekly.
How cheap is the stock market compared with Treasury bonds?
Stocks and bonds both pay you something per dollar invested. Put them in the same units and the comparison is one subtraction.
| Asset | Yield | P/E equivalent (100 / yield) | Stocks minus this, percentage points |
|---|---|---|---|
| S&P 500 earnings yield | 3.80% | 26.4 (the P/E) | n/a |
| 10-year Treasury yield | 5.00% | 20.0 | -1.20 |
| 3-month Treasury bill | 4.05% | 24.7 | -0.25 |
| 10-year inflation-protected Treasury (real yield) | 2.66% | 37.6 | +1.14 |
The P/E equivalent is 100 divided by the yield: a bond paying 5% is "priced" at 20 times its interest, the way a stock earning 5% of its price is priced at 20 times earnings. The market's P/E is 26.4, so on this simple measure the 10-year Treasury is cheaper than stocks. For stocks to yield what the 10-year pays, prices would have to fall 24.0% with earnings unchanged, or earnings would have to rise 31.6% with prices unchanged. The S&P 500's dividend yield, a different measure, is 1.05%.
How do you calculate the equity risk premium?
Four steps, with today's numbers.
- Start with the P/E. The S&P 500's trailing price-to-earnings ratio is 26.4: investors pay $26.4 for each $1 of the last twelve months' profit.
- Flip it over. The earnings yield is 1 divided by the P/E, or 100 / 26.4 = 3.80% (3.80% as published): the profit per dollar of price.
- Pick a risk-free yield. The 10-year Treasury pays 5.00%; the 3-month bill pays 4.05%. A Treasury held to maturity carries no default risk.
- Subtract. 3.80% minus 5.00% is -1.20 percentage points: the equity risk premium, what stocks offer over the risk-free yield for taking the risk. Below zero, a risk-free bond yields more than the stock market's profits do.
The same number is the Crash Indicator's equity risk premium card, drawn from the same data. It is a simple measure with a long history, sometimes called the Fed model; critics point out that profits grow and a bond's interest does not, which is why the page also shows the version against inflation-protected yields below. Terms: equity risk premium, P/E ratio, risk-free rate.
Has the stock market ever yielded less than bonds before?
Yes, often, and for years at a time.
- S&P 500 earnings yield
- 10-year Treasury yield
| Period | Months | Deepest gap, points | S&P 500 price over the next ten years, from the first month |
|---|---|---|---|
| October 1968 to October 1971 | 37 | -1.45 January 1970 | -0.3% a year |
| December 1971 to May 1973 | 18 | -0.94 September 1972 | +2.7% a year |
| October 1980 to May 1995 | 176 | -4.44 September 1987 | +8.4% a year |
| July 1995 to May 2003 | 95 | -3.22 January 2000 | +8.9% a year |
| October 2008 to October 2009 | 13 | -2.91 June 2009 | +7.4% a year |
| January 2024 to now | 33 | -1.14 September 2026 | not yet ten years |
Since April 1953, the premium was below zero in 44% of months; today's -1.20 is lower than 75% of those months. The stock market's P/E is higher than in 94% of months since 1871 (Robert Shiller's data). The last column is the S&P 500's price only, without dividends, annualised from the stretch's first month; a stretch that began less than ten years ago has no such figure yet.
What happened to stocks after they yielded less than bonds?
The test of whether the comparison is useful: did the gap say anything about the next ten years?
| Premium at the start | Months | Average price change | Range of outcomes |
|---|---|---|---|
| below 0 points | 352 | +7.3% a year | -2.9% to +14.8% |
| 0 to 2 points | 204 | +3.8% a year | -2.4% to +12.1% |
| 2 to 4 points | 117 | +7.9% a year | +2.8% to +13.2% |
| 4 or more points | 44 | +8.9% a year | +5.5% to +12.2% |
Across 717 starting months (January 1957 to September 2016), the correlation between the premium and the next ten years' price return was -0.04: almost no link. Months that began with stocks yielding less than Treasuries averaged +7.3% a year over the next decade, against +6.5% for all 717 months, so the gap did not separate good decades from bad ones.
How to read this: each month since 1957 with ten years of data after it is one observation. The months overlap, so there are far fewer independent decades than 717, and the result is dominated by a few long regimes: in the 1980s and 1990s bond yields were very high and stocks yielded less than them for fifteen years while the market rose strongly. Returns are the S&P 500's price only, without dividends. This says the comparison has not been a timing tool, not that valuation does not matter: the Shiller CAPE and the Crash Indicator look at other angles. Past results do not predict future ones.
Is the real-yield comparison fairer to stocks?
Comparing with an inflation-protected bond removes the inflation problem.
- S&P 500 earnings yield
- 10-year inflation-protected yield
A 10-year Treasury pays a fixed 5.00% in dollars that will buy less if prices rise; a company's profits tend to grow with inflation. The inflation-protected Treasury (TIPS) pays 2.66% above inflation, which is closer to what an earnings yield is. Against it the premium is +1.14 points, higher than 5% of the 286 months since 2003. The two versions point different ways, which is the honest summary: stocks yield less than the nominal 10-year, and more than the real one.
What else matters besides valuation?
Liquidity, valuation, risk and time: four questions every market view has to answer.
| Question | What it asks | Where to look on this site |
|---|---|---|
| Liquidity | Is money easy or tight? Interest rates, money supply and credit spreads. | The Crash Indicator's liquidity and credit cards; money supply on Dollar vs Euro |
| Valuation | How much do you pay for earnings, against history and against bonds? | This page; the Shiller CAPE; what a good P/E is; the sector map |
| Risk and positioning | Is everyone already in, or is the market under-owned? Breadth, insider buying, what large investors hold. | Market breadth and the insider ratio on the Crash Indicator; Superinvestors. This site has no fund-flow data, so it cannot say whether stocks are over- or under-owned. |
| Time | How long can you wait? The same price is a different bet over one year and over ten. | The ten-year table above; Intrinsic Value Calculator |
The four questions are a checklist for looking at a market, not a model and not a signal; none of them has a number that says buy or sell.
Frequently asked questions: equity risk premium
What is the equity risk premium?
The extra return stocks offer over a risk-free bond for taking the risk. This page uses the simple version: the S&P 500's earnings yield (earnings divided by price, the inverse of the P/E) minus the 10-year Treasury yield, in percentage points. See the glossary.
What is the equity risk premium today?
As of October 26, 2026 the S&P 500's earnings yield is 3.80% and the 10-year Treasury yields 5.00%, so the premium is -1.20 percentage points (-0.25 against the 3-month bill and +1.14 against the 10-year inflation-protected Treasury).
Is the stock market cheap or expensive compared with bonds?
On the nominal 10-year Treasury, expensive: stocks yield 1.20 percentage points less, and the market's P/E of 26.4 compares with 20.0 for the bond. Against the inflation-protected Treasury the premium is +1.14. Either way it is a relative measure: it says how stocks are priced against bonds, not whether either is a good investment.
What is the P/E ratio of a government bond?
100 divided by its yield. A 10-year Treasury paying 5.00% has a "P/E" of 20.0, the 3-month bill at 4.05% has 24.7, against 26.4 for the S&P 500. A lower number means more yield per dollar.
Does stocks yielding less than bonds mean a crash is coming?
The history does not say so. Since 1953 the premium was below zero in 44% of months, including a fifteen-year stretch from 1980 to 1995 when the market rose strongly. The correlation between the premium and the S&P 500's next ten-year price return was -0.04. See the Crash Indicator for what has historically come before drawdowns.
What is the Fed model?
A popular name for comparing the stock market's earnings yield with the 10-year Treasury yield, as this page does. It is simple and widely used; its critics note that earnings grow while a bond's coupon is fixed, and that the comparison has not predicted returns well, which the table above shows.
Where does this data come from?
The S&P 500's earnings yield, P/E and dividend yield come from Robert Shiller's data via multpl.com; Treasury yields from FRED (the St. Louis Fed); the S&P 500 price index from the same pipeline as the Crash Indicator. The page is rebuilt every week.
Where does this data come from?
- Stocks: the S&P 500's trailing earnings yield, P/E and dividend yield, monthly since 1871: Robert Shiller's data via multpl.com.
- Treasuries: FRED (St. Louis Fed): 10-year (GS10, DGS10), 3-month bill (TB3MS, DTB3) and 10-year inflation-protected yield (DFII10).
- What happened next: the S&P 500 monthly price index (price only, without dividends) from the same data as the Crash Indicator.
- Method and limits: every figure is shown as published, with its date, and refreshed weekly (data as of October 26, 2026). There is no composite score, and nothing here predicts where a rate goes next. Read the Editorial Standards for how this site handles data.
Educational content only, not investment, currency-trading or tax advice. Exchange rates and interest rates move for reasons no single table captures.