Treasury Bonds Now Pay More Than Stocks Earn by a Gap Last Seen in 2009. Warren Buffett Warned in 1999 What That Does to Stock Prices

Résumé détaillé

A 10-year Treasury at 4.98% now pays more than the S&P 500 earns at 26 times earnings, a 1.13-point gap last seen in 2009. On $100,000 that is $4,980 of interest against $3,850 of company profit. Warren Buffett called interest rates gravity in 1999; here is what the gap did the three times it was this wide, what closes it, and what a retired couple with $1.5 million in an index fund should do with $500,000.

A 10-year Treasury bond closed Tuesday at a 4.98% yield, and the S&P 500, priced at 26 times its last twelve months of earnings, earns 3.85% on the money you put into it, so the bond now pays more than stocks earn by a gap last seen in 2009. On $100,000, the bond pays $4,980 a year, call it $5,000, locked in for ten years. The same $100,000 in an S&P 500 index fund owns $3,850 of company profit, of which $1,060 arrives as cash dividends. The gap, 1.13 points in the bond's favor, is wider than in any month from October 2009 through August 2026 on the monthly record of the index's earnings yield and the Fed's 10-year rate (January 2025 came closest, at 1.08 points).

For many Americans, funding a 401(k) only leads to more retirement questions. Should you roll your 401k into an IRA, and when? What's the tax impact if the rollover check gets made out to the wrong name? When do required withdrawals begin, and how much do you have to take?

A bond that pays more than stocks earn reads as a warning that stock prices are too high for the interest rates they now face; the limit of that reading is that company profits grow and a bond coupon does not, and Wall Street's forecasts already have the S&P 500 earning more than the bond within a year.

Warren Buffett described the pull in Fortune on Nov. 22, 1999, in a piece written with Carol Loomis. Interest rates, he wrote, "act on financial valuations the way gravity acts on matter: The higher the rate, the greater the downward pull." His example was the 17 years from the end of 1964 to the end of 1981, when long government bond yields went from just over 4% to more than 15%. The Dow Jones Industrial Average closed 1964 at 874.12 and closed 1981 at 875.00. Profits grew the whole time. The gravity of rising rates held the price flat for 17 years, and if you were drawing on a stock portfolio then, you sold shares into a flat market the whole time.

Take Gary and Linda, 67 and 64, a scenario built for this story.

The record since 1953 shows…

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