The 10-Year Treasury Hit 5%. The S&P 500 Now Barely Out-Yields It, Even at a 'Cheap' 19x Earnings
- The 10-year Treasury yield traded as high as 5.04% on Sept. 15, 2026, up from 4.19% at the start of the year. It closed the week near 5%.
- The S&P 500's forward 12-month P/E is 19.1 (FactSet, Sept. 18), below its 5-year average of 19.8 and in line with its 10-year average of 19.0.
- A 19.1 P/E is an earnings yield of about 5.2%, only about 0.2 points above the 10-year Treasury.
- P/E fell because earnings rose fast: analysts expect +31.8% S&P 500 earnings growth in 2026 and +15.2% in 2027.
- The average 30-year US mortgage rate was 6.76% in the week of Sept. 10 (Freddie Mac).
Two numbers that usually disagree now agree
Stocks look fairly priced on one measure and expensive on another. Both are true.
The case that stocks are cheap: FactSet puts the S&P 500's forward 12-month P/E at 19.1. That is below the 5-year average of 19.8 and close to the 10-year average of 19.0. The P/E didn't fall because prices fell. The index is still around 7,600. It fell because earnings are growing faster than prices. Analysts expect S&P 500 earnings to rise 31.8% in 2026, led by energy and semiconductors.
The case that stocks are expensive: the 10-year Treasury yield touched 5.04% this week, up from 4.19% in January. The last time it held around this level was 2007. It briefly touched 5% in October 2023.
Put them side by side:
| Measure | Yield |
|---|---|
| S&P 500 forward earnings yield (1 ÷ 19.1) | ~5.2% |
| 10-year US Treasury | ~5.0% |
| Gap (a simple equity risk premium) | ~0.2 points |
For most of the 2010s, that gap was several percentage points wide. Owning stocks paid well above the "safe" option. Today it pays almost nothing extra upfront.
Why this matters more than the P/E headline
An earnings yield isn't cash in your pocket. Companies retain much of their earnings, and those earnings are supposed to grow over time. A Treasury's 5% is fixed. So a thin gap doesn't mean stocks lose to bonds. It means that stock returns now depend almost entirely on earnings growth delivering.
That's a real risk this year because the growth is concentrated. FactSet expects third-quarter earnings to rise 28.9%, but Energy is expected at +109.6% (oil is up 47% since June 30) and Information Technology at +63.3%, mostly semiconductors. Energy profits depend on oil staying high. Chip profits depend on AI spending staying high. If either slips, the P/E jumps back up and the "cheap" market isn't cheap anymore.
What the 5% yield does elsewhere
- Mortgages: Freddie Mac's average 30-year rate was 6.76% in the week of September 10, up from 6.35% a year earlier. On a $400,000 loan, the move from 6% to 7% adds about $263 a month.
- Government debt: higher yields raise the cost of refinancing. That's why debt supply and long-dated auctions have become market-moving events. We covered the Treasury's long-bond buybacks in August.
- Canada: Government of Canada yields move with Treasuries. Canadian 5-year fixed mortgage rates follow the 5-year bond. See how bond yields set Canadian mortgage rates.
What to do with this
- Stop treating cash and bonds as dead money. A Treasury or high-quality bond fund yielding near 5% is a real alternative now. For anyone within a few years of needing their money, locking in some of that yield is a reasonable, boring decision.
- Check your concentration. If your portfolio is mostly S&P 500 or Nasdaq-100, your returns now lean heavily on chips and energy earnings. The S&P 500 concentration piece shows how to see it.
- Don't sell everything on this signal. The equity risk premium has been thin for years at a time without a crash. It tells you the margin for error is small. It doesn't tell you when anything will happen.
The honest uncertainty
If the Fed's projections are right and inflation drifts down in 2027, yields could fall, making stocks look more attractive again. If oil stays near $100 and the Fed keeps hiking, 5% could become the floor, not the ceiling. A balanced portfolio exists for exactly this kind of uncertainty.
Frequently asked questions
What is the equity risk premium?
It is the extra return investors expect for owning stocks instead of safe government bonds. A simple version is the stock market's earnings yield (earnings divided by price, or 1 divided by the P/E) minus the 10-year Treasury yield. At a forward P/E of 19.1 and a 10-year yield near 5%, that gap is only about 0.2 percentage points.
Does a small equity risk premium mean stocks will crash?
No. It is a poor timing tool. The gap was thin or negative for long stretches before 2008 while stocks kept rising, because earnings growth can carry returns even when starting yields are low. What a small premium does mean is less room for error: if earnings disappoint, there is little valuation cushion.
Is the S&P 500 cheap or expensive right now?
Both, depending on the yardstick. At 19.1 times forward earnings it is below its 5-year average of 19.8, so it looks cheaper than it has been. Compared with a 10-year Treasury near 5%, it looks expensive, because bonds now pay almost as much with far less risk.
Why does the 10-year Treasury yield matter to me?
It is the benchmark for long-term borrowing. US 30-year mortgage rates track it closely, and in Canada 5-year fixed mortgage rates follow Government of Canada bond yields, which move with Treasuries. It also sets the return investors can get without taking stock-market risk.
Primary sources
Data & disclaimer: This article is for educational purposes only and is not financial or investment advice. Figures reflect data available as of Sep 18, 2026, and conditions change — always confirm current pricing, rates and rules with the provider before you act. Written by Elizabeta Dimoska. See our editorial standards and disclosure.
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