Time Frame: Long
Category: Fundamental

Description

The S&P Earnings Yield is the prior 12 months' earnings of the S&P 500 Index as a percentage of its cash price. This is a method of establishing a measure of valuation for the actual earnings generated by the market. A higher earnings yield suggests the market is at a better fundamentally valued level than a lower earnings yield. This indicator calculates this fundamental value relative to monetary investments to create a measure of the relative attractiveness of holding stocks versus fixed income instruments.

Calculation & Significant Levels

S&P 500 Earnings Yield vs. T-Bill Yield: Three-month T-Bill yield divided by the S&P 500 Earnings Yield. Above 1.1 is considered bearish and below .9 is bullish.

Formula:             (T-Bill Yield)
         -------------------------------------------
          (S&P 500 Earnings) / (S&P cash index price)

Gauge Elements: Magnitude
Updated: Weekly (as of Friday close)

Strategy