August 28, 2025
When the Fed raises interest rates, the idea from the FOMC is for investors to take less risk and make it more attractive to move money into safer fixed income.
With this backdrop, the convergence in yield levels across debt and equity markets is remarkable, see chart below.
Not only is the yield level in fixed income higher than it has been for many years, but the S&P 500 forward earnings yield and similar implied yield levels in equities have been coming down, see chart below.
The bottom line is that fixed income remains more attractive than the implied yield levels in public equity markets at the moment.
Put differently, risk is mispriced and investors buying the S&P 500 today are not rewarded for the risks they are taking.
Sources: Nareit, Bloomberg, Apollo Chief Economist
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