Earnings Yield

Long time readers of this blog know that I use the Earnings Yield  on the S&P 500 as one of my primary valuation tools.  The earnings yield is simply the inverse of the market's Price to Earnings ratio.  The chart at right from Reuters shows how skewed the earnings yield has become since 2008. The earnings yield is in gold.  You can double click on the chart to make it larger. 

We are now at historically high levels for this metric.  The long term average for earnings yield is about 6%.  Based on Friday's close stocks would need to advance over 30% for this number to trade back in line with its historic average!  

Link:  Reuters Earnings Yield/ America's Jobs Crisis.

*Long ETFs related to the S&P 500 in client and personal accounts.