Update on Real Earnings Yield and Future Stock Market Returns

Prior to 2015, we tracked performance of an equity market timing model based on real earnings yield (REY). The Simple Asset Class ETF Value Strategy (SACEVS) subsumed that model in 2015. Earnings yield is aggregate corporate earnings divided by corresponding stock index level. The REY model adjusts this earnings yield by subtracting the inflation rate for the same period. Does the REY concept still hold value for equity market timing? Using quarterly S&P 500 operating and as-reported earnings, S&P 500 Index (SP500) level, quarterly inflation as calculated from the U.S. Consumer Price Index, dividend-adjusted SPDR S&P 500 ETF Trust (SPY) and 3-month U.S. Treasury bill (T-bill) yield as available during March 1988 through December 2023, we find that: