This chart shows the ML investment grade corporate bond index yield vs the trailing SPX earnings yield (E/P ratio). From 2004-2007 the investment grade bond index and SPX earnings yield appear balanced near equal valuation. The red box from 2007 to 2009 marks the peak of the market to 2009 when the SPX sunk to recession lows. Note the following period of QE when the Fed fund policy of near zero lowered bond yields relative to equity earnings yield. Lately it appears that the SPX trailing E/P ratio and IG corporate bond yields appear to have finally 'normalized' and returned back to a range of equal valuation.

However, investors can reasonably expect increased volatility ahead as the Fed begins this next phase of QT. The Fed forecasts a rise in the overnight lending rate and continued unloading of the balance sheet . This is likely to stress the equity and investment grade bond valuations which are currently 'priced to perfection'.

Chart data:


Here's another look at these indexes separately, instead of as a spread
ML investment grade bond yield in purple
SPX trailing earnings yield in orange (E/P ratio)
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