View from the Observation Deck

1. Earnings yield is the inverse of the price-to-earnings ratio. The calculation is Earnings/Price. The earnings used in the chart are actual, not estimates.
2. Over the past 50 years, the earnings yield for the S&P 500 has outpaced the core consumer inflation rate (Consumer Price Index excluding; food and energy prices) by an average of 2.4 percentage points.
3. When the spread is above 2.4 percentage points, equities are usually considered attractive, according to U.S. News & World Report/Money.
4. The earnings yield for the S&P 500 closed 2011 at 7.72%, while the core consumer inflation rate finished at 2.20%. The spread was 5.52 percentage points.
5. Since 1991, the two calendar years with the highest earnings yields (aside from 2011) were 1994 (6.91%) and 2008 (7.24%).
6. The S&P 500 posted total returns of 34.11% in 1995 and 26.47% in 2009. Keep in mind that past performance is no guarantee of future results.