This Simple Metric Could Predict Future Stock Market Returns

New research shows how the gap between stock earnings yields and real bond yields helps forecast long-term market behavior.

A groundbreaking study, published in the September 2025 issue of the International Review of Economics & Finance, reveals that a surprisingly simple metric—the difference between current S&P 500 earnings yield and long-term real Treasury Inflation-Protected Securities yield—has significant power to possibly predict stock market returns.

The research demonstrates that when actual returns deviate from this baseline prediction, these deviations are systematically related to inflation, monetary policy, and economic fundamentals, offering investors a new lens for understanding market dynamics.

Stock Market Return Expectations

The authors, Austin Murphy, Zeina N. Alsalman, and Ioannis Souropanis, set out to solve a fundamental puzzle in finance: Why do stock market returns sometimes diverge dramatically from what economic theory would predict based on earnings yields?

You can read the rest of my Morningstar article here.