Tools / Earnings yield vs bonds
Earnings yield comparatorStocks or bonds: who pays more?
Turn a P/E upside down and you get the earnings yield: what the business earns for each dollar you pay. Set it next to what a 10-year Treasury pays you to wait.
Two yields, side by side
CAPE earnings yield minus the 10-year, since 1990 real data
Above zero, ten-year average earnings yielded more than Treasuries. Sources: Shiller CAPE (dev feed via multpl.com), FRED DGS10.
How this works
Earnings yield = 1 ÷ P/E. A P/E of 20 means you pay $20 for $1 of yearly profit, an earnings yield of 5%. The 10-year Treasury yield is what the US government pays to borrow for ten years, the usual yardstick for a safe return.
When the earnings yield sits well above the bond yield, stocks pay you extra for their risk. When it sits below, you are counting on earnings growth to make up the gap. That can be fine for a business that really does grow, which is what the growth input lets you test.
The S&P 500 preset adds up the latest fiscal-year earnings of every member against today's market values. The CAPE preset uses ten years of inflation-adjusted earnings instead, which smooths out booms and busts. Neither is a timing signal on its own.