Stoxx Europe 600 E / P Ratio minus 10-Year Bundes (White) Yield and E / P Ratio S&P 500 minus the 10-year Treasury yield (in blue). Source: Bloomberg
Stocks are losing their attractiveness relative to bonds, for at least two reasons. First, due to the consequences of the pandemic, corporate profits are decreasing, and, secondly, bond yields are growing. The equity risk premium relative to bonds * has dropped in the US * to record lows in the last ten years, and in Europe ** is at its lowest levels since the beginning of 2014, Bloomberg notes.
S&P 500 E / P (net profit / price) minus 10-year Treasury returns
Stoxx Europe 600 E / P Index minus 10-year Bundesian returns
Fears of a spike in inflation are keeping bond yields at relatively high levels and weighing on high-value growth stocks that carry heavy weight in US stocks.