For the past few years we have maintained that stocks are attractive compared to most other asset classes, particularly government bonds. One metric that supports our view is the high current spread between equity market earnings yields (the inverse of the price-to-earnings ratio) and long-term government bond yields. For the U.S., this spread peaked for the current cycle in September 2011, around the time of the debt ceiling debate before this last one, at over 600 basis points. While the spread has come down over the past two years, it remains elevated from a historical perspective.
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