That’s Rich

Published On: June 2, 2026

Written by: Ben Atwater and Matt Malick

By one important measure, U.S. equities are quite expensive.

The “earnings yield” on a stock or an index of stocks is one measure of the return an investor theoretically sees on his investment. It is earnings (or profit) per share divided by price per share, and it represents the inverse of the price-to-earnings ratio – a gauge widely used by investors to determine how “cheap” or “expensive” a stock is.

The more you pay for an investment, the lower the yield. And according to the Shiller cyclically adjusted earnings yield, which smooths out business cycles by dividing the average of the last 10 years of inflation-adjusted earnings by the current price of the S&P 500, stocks are yielding less today than at just about any time in history.

In fact, the only other time stocks yielded this little was in the year 2000, shortly before the Internet bubble burst.

Of course, stocks could still be a relatively attractive investment even when they don’t yield much, if everything else also yields little.

Another helpful valuation metric, the difference between the S&P 500 earnings yield and the 10-year US Treasury yield, also indicates overpriced stocks. But it is far from the extreme levels that the preceding metric would indicate.

Valuation metrics are notoriously poor tools for timing the market, but they should remain reliable indicators of multi-year forward returns. And if returns in the coming years are subpar, we will likely suffer periods of stressful volatility.

Therefore, with stocks trading at rich valuations and bonds offering a relatively attractive alternative, it is important to 1) maintain a long-term target asset allocation that you can stick with through thick and thin and 2) continually rebalance around that long-term allocation.

Disclosure: Regulators could view this communication as marketing / advertising. This commentary is written by Ben Atwater and Matt Malick and reflects only their opinions and viewpoints. Atwater Malick, LLC sources facts, figures, quotations, etc. from what they believe are reliable sources, but they cannot guarantee their reliability. In addition, this essay makes no claims as to investment performance – past, present, or future. For additional important disclosures, please click here.