Sign up to create alerts for Instruments,
Economic Events and content by followed authors
Free Sign Up Already have an account? Sign In
Quotes
All Instrument Types
- All Instrument Types
- Indices
- Equities
- ETFs
- Funds
- Commodities
- Currencies
- Crypto
- Bonds
- Certificates
Please try another search
💰 With a 129% YTD gain in the bag, these are our AI’s top global picks for March
Read now
The Dividend Yield Scare
www.investing.com/analysis/the-dividend-yield-scare-200312499
The Dividend Yield Scare
By Ed Yardeni | May 03, 2018 01:01PM ET 
S&P 500 Yields: Dividend Vs. Earnings
Contributing to the stock market’s agita so far this year has been the prospect that the 10-year US Treasury Bond Yield may be on the verge of rising above 3.00%, a level that for some reason is perceived as particularly dangerous for stocks. I suppose that’s mostly because a few widely respected market gurus have been warning that the risks of a bear market in stocks increase above this totally subjective threshold level. Perversely, at the same time, there has been some consternation over the fact that the yield curve has been flattening. That implies that the bond yield hasn’t increased fast enough relative to the federal funds rate and relative to the two-year Treasury note yield! So what are we supposed to be rooting for?
Complicating matters some more are that as the Fed has hiked the federal funds rate, short-term Treasury bill and note yields have risen to match or even exceed the S&P 500’s dividend yield. A few market commentators deem this development as bear-market provoking. So we have nothing to fear but that interest rates will continue to rise above the dividend yield and that short-term rates will rise faster than long-term rates. Consider the following:
(1) S&P 500 yields. I like to look at the S&P 500 dividend yield along with the S&P 500 earnings yield. The latter is derived from the former. On average over time, half of earnings tends to be paid out as dividends. During Q1-2018, the dividend yield was 1.89%, while the earnings yield during Q4-2017 was 4.78% (for the latter, Q1 data aren’t yet available).
(2) Treasury bill rates. The one-year US Treasury note yield rose to 2.06% during March and above the S&P 500 dividend yield for the first time since June 2008. I am hard pressed to see a predictable pattern showing that the spread between the one-year and the dividend yield can be useful in calling bear markets. They tend to occur when interest rates rise high enough to cause a recession. Simply crossing above the dividend yield isn’t a sure-fire signal of an impending recession and bear market.
(3) Treasury bond yields. Comparing the 10-year Treasury bond yield to the dividend yield makes even less sense as a bear market indicator. This Treasury yield is usually compared to the earnings yield, since the total return of stocks tends to be driven by overall earnings. Whether it makes sense for investors to compare just the dividend yield to the bond yield is a debatable issue.
S&P 500 Dividend Yield Vs. 1-Year Treasury Bond Yield
Related Articles
Inflation Soars, Rates Fall? Here’s the Silly Error Many Investors Are...
By Michael Foster - Mar 06, 2025
When it comes to the economy, we’re in a bit of a weird spot: The data tells us that, despite inflation fears, interest rates are likely to fall in the year ahead. Falling rates...
Why Investors Are Eyeing Telegram’s 9.4% Yield Bonds
By Julia Khandoshko - Feb 18, 2025
2
Telegram Group Inc. is a globally recognized messaging service company, offering a cloud-based mobile and desktop messaging application. Known for its strong focus on security,...
Why Actively Managed Funds May Offer Substantial Advantages for Bond...
By David Rosenstrock - Feb 07, 2025
Many investors regard passively managed index mutual funds or ETFs as favorable options for stock investing. However, they may also find that actively managed funds offer...
The Dividend Yield Scare
Add Chart to Comment
Confirm Block
Are you sure you want to block %USER_NAME%?
By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.
%USER_NAME% was successfully added to your Block List
Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.
Report this comment
I feel that this comment is:
Comment flagged
Thank You!
Your report has been sent to our moderators for review
Add a Comment
We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
Enrich the conversation, don’t trash it.
Stay focused and on track. Only post material that’s relevant to the topic being discussed.
Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.