Cash yields vs equity earnings yield in 2026 leave a thin margin for stock investors. As of September 15, 2026, 3-month Treasury bills yielded 3.97% and the 10-year Treasury 5.00%, while the S&P 500 (SPX) traded at 19.1 times forward 12-month earnings, an earnings yield of about 5.2%, and at 25.9 times trailing earnings, an earnings yield of about 3.9% [2] [3] [1]. On forward earnings, stocks offer roughly 1.3 percentage points more than cash and about 0.2 point more than the 10-year bond; on trailing earnings they offer less than either. Aswath Damodaran's implied equity risk premium, which uses expected cash flows rather than a simple earnings yield, stood at 4.14% on September 1, 2026 [4]. The premium is positive but depends heavily on analysts' forecast of 31.6% earnings growth in 2026 being delivered [1].
What the earnings yield tells investors
The earnings yield is the inverse of the price-to-earnings ratio: earnings per share divided by price. It is the closest equity equivalent of a bond yield, and comparing it with Treasury yields is the oldest shortcut for judging whether stocks are expensive relative to safe assets. The comparison is imperfect. Earnings grow while a bond coupon does not, so equities deserve a lower yield than bonds in a growing economy; but earnings are also uncertain, so investors demand a premium for holding them. When the earnings yield falls close to or below the bond yield, the market is relying on growth to justify prices.
Cash yields vs equity earnings yield: the September 2026 numbers
| Measure (as of Sep 15, 2026 unless noted) | Level | Yield |
|---|---|---|
| 3-month Treasury bill | 3.97% [2] | 3.97% |
| 10-year Treasury note | 5.00% [3] | 5.00% |
| S&P 500 forward P/E (FactSet, Sep 11) | 19.1 [1] | 5.24% |
| S&P 500 trailing P/E (FactSet, Sep 11) | 25.9 [1] | 3.86% |
| Implied equity risk premium (Damodaran, Sep 1) | 4.14% over a 4.75% Treasury bond rate [4] | Expected stock return about 8.9% |
Earnings yields are computed as one divided by the P/E ratios published by FactSet [1]. The S&P 500 closed at 7,585.73 on September 15, 2026, up 10.8% for the year [5].
Why forward and trailing yields differ so much
The gap between a 19.1 forward multiple and a 25.9 trailing multiple is unusually wide because analysts expect earnings to jump. FactSet's September 11 report shows expected year-over-year earnings growth of 28.7% for the third quarter of 2026, 31.6% for calendar 2026 and 15.1% for calendar 2027, with third-quarter revenue growth of 11.9% [1]. If those forecasts hold, the forward earnings yield of 5.24% is the right comparison and stocks retain a modest premium over bonds. If earnings growth disappoints, the trailing yield of 3.86% is closer to reality, and cash at 3.97% would have offered a higher yield with no volatility.
How today's risk premium compares with history
FactSet notes that the 19.1 forward multiple is below the 5-year average of 19.8 and just above the 10-year average of 19.0, and below the 20.4 recorded on June 30, 2026 [1]. The index has therefore become cheaper on forward earnings during 2026 even as prices rose, because earnings estimates rose faster. The bond side of the comparison has moved the other way: the 10-year yield climbed from 4.18% at the end of 2025 to 5.00% on September 15, its highest level of the year, and the 3-month bill from 3.57% to 3.97% [3] [2]. Rising Treasury yields have absorbed most of the improvement in equity valuation, which is why the spread between the earnings yield and the bond yield remains narrow.
Damodaran's implied premium of 4.14% on September 1, 2026 is measured against a 4.75% Treasury bond rate, which puts the expected return on stocks near 8.9% [4]. That reading is more optimistic than the simple earnings-yield spread because it credits stocks with growth and with buybacks. Readers who prefer the simple spread will see a market priced for continued strong profits; readers who prefer the implied premium will see a normal reward for equity risk.
What cash offers that it did not in 2021
The practical change since 2021 is that the risk-free alternative pays. A 3.97% bill yield, roughly in line with recent inflation readings, means an investor holding cash is no longer losing purchasing power at a rapid rate while waiting. That raises the bar for equities and for every other risk asset. It also explains why the market has been sensitive to each move in Treasury yields this year. Investors can compare index levels, sector valuations and yields on DataPorium's stock market page [6].
How investors may use the comparison
- Treat the forward earnings yield as a ceiling, not a promise: it assumes 31.6% earnings growth this year [1].
- Compare the earnings yield with the 10-year yield for long-term allocation, and with the bill yield for the cash reserve decision; both spreads are narrow as of September 15, 2026 [2] [3] [1].
- Remember that a low premium has historically meant lower future returns, not necessarily near-term losses; markets can stay expensive for years.
- Diversify the earnings source: FactSet's bottom-up target of 9,251.61, 21.9% above the report's closing level of 7,591.70, relies heavily on energy and technology earnings [1].
The fair counterpoint is that the earnings yield understates equity returns when earnings grow quickly and companies return cash through buybacks, which is exactly the 2026 situation. Analysts have raised estimates through the year, and third-quarter earnings growth of 28.7% would be the third straight quarter above 25% [1]. If that pace continues into 2027, today's narrow spread will look reasonable in hindsight. If it does not, cash at 3.97% will have been the better risk-adjusted choice, and the trailing yield of 3.86% will have been the honest one.
Stocks yield about 5.2% on forecast earnings against 4% on cash and 5% on the 10-year bond, a premium that exists only if 2026 profit growth arrives.
Key takeaways
- As of September 15, 2026, 3-month bills yielded 3.97% and the 10-year Treasury 5.00%, the highest of the year [2] [3].
- The S&P 500 forward P/E of 19.1 implies a 5.24% earnings yield; the trailing P/E of 25.9 implies 3.86% [1].
- Damodaran's implied equity risk premium was 4.14% on September 1, 2026, over a 4.75% Treasury bond rate [4].
- The spread between stocks and bonds is narrow because analysts expect 31.6% earnings growth in 2026; the risk is in that forecast [1].
Frequently asked questions
What is the S&P 500 earnings yield right now?
About 5.24% on forward 12-month earnings (a P/E of 19.1) and about 3.86% on trailing earnings (a P/E of 25.9), based on FactSet's September 11, 2026 report [1].
Are Treasury bills yielding more than stocks?
Not on forward earnings: bills yielded 3.97% on September 15, 2026 against a 5.24% forward earnings yield [2] [1]. On trailing earnings, at 3.86%, stocks yield slightly less than bills.
What is the equity risk premium in 2026?
Aswath Damodaran's implied equity risk premium was 4.14% on September 1, 2026, measured against a 4.75% Treasury bond rate [4]. The simple spread between the forward earnings yield and the 10-year yield was about 0.2 percentage point on September 15 [1] [3].
Should investors hold cash instead of stocks when yields are this close?
The data do not give a timing signal. A narrow premium has historically meant lower long-run equity returns, but stocks have often stayed expensive for years. Investors may consider holding the cash they need for near-term spending at today's 3.97% yield and keeping long-term money in stocks sized to their risk tolerance [2].
Sources & References
- [1] FactSet Earnings Insight, September 11, 2026
- [2] FRED: 3-Month Treasury Bill Secondary Market Rate (DTB3)
- [3] FRED: Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity (DGS10)
- [4] NYU Stern (Damodaran): Implied equity risk premium, September 1, 2026
- [5] FRED: S&P 500 (SP500), daily close
- [6] DataPorium Stock Market Data
