UST Yields Vs. S&P 500 Dividend Yields

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Includes: ADX, DGRO, DGRW, DHS, DIVB, DIVC, DLBL, DLBS, DLN, DTD, DVY, DVYL, EDV, FDL, FDRR, FDVV, FVD, JDIV, JTD, KNG, LCEAX, LEAD, NOBL, OPER, PFM, QDIV, RDVY, REGL, SCHD, SDOG, SDY, SDYL, SPTL, TBF, TBT, TLH, TLT, TMF, TMV, TTT, TYBS, UBT, VGLT, VIG, VUSTX, ZROZ
by: Bespoke Investment Group

As interest rates have risen in the last year, we have seen a number of charts similar to the one below comparing the yield on the 3-Month US Treasury (UST) to the dividend yield of the S&P 500. For the vast majority of the current bull market (up until only a couple months ago) short-term interest rates have been below the dividend yield of the S&P 500. Since the FOMC began hiking rates over two years ago, short-term UST rates have risen. This year, they rose above the S&P 500 dividend yield; a key inflection point creating talk that the higher yield on cash makes UST more attractive than equities.

Relative to the current bull market, this may seem impressive. On a longer time horizon, though, this is not the case. Prior to 2009, instances where short-term Treasuries yielded less than the S&P 500 were few and far between. This cross in yields is by no means a red flag for equities, rather, it is a return to what has been historically normal.