Image: Danish Siddiqui/ Reuters
The earnings yield of the market is at a 4.24 percent compared to the 10 year bond yields, which are at 6.45 percent. Generally, a higher earnings yield means equity market is attractive. The earnings yield is the inverse to the P/E ratio. The number is generally compared to the long-term bond yields to understand if the stock markets are overvalued
Right now, the earnings yield is low compared to bond yield. In an ideal situation, the equity market should provide a risk premium over bond yields to compensate for the extra risks that investors are taking. Bonds, in general, are considered risk-free.