Cash is king!? When a $6 plastic crown can fetch almost $600,000 at auction, it’s safe to say the value has been inflated. The harder question for investors nearly a year into the Federal Reserve’s inflation fight is whether buying the dip in stocks is wise, or earning a cool 5% yield on safe-haven Treasury bills, a cash equivalent, makes more sense.
By one popular metric, investing in the stock market now yields roughly the same as short-term debt backed by the full faith of the U.S. government, albeit with both still outpaced by the 6.4% annual cost of living as of January. Specifically, the earnings yield of the companies in the S&P 500 index
SPX,
-1.81%
converged in the past week with the 6-month Treasury
TMUBMUSD06M,
5.023%
rate, with both meeting around 5%, for the first time in about 20 years (see chart).
U.S. stock market earnings yield and 6-month Treasury rate converge in early 2023 around 5%
Refinitiv
The earnings yield looks at the past 12 months of earnings, divided by share price. It also is a …