with dividend yields at generational lows and interest rates rising past history indicates that investors shouldn’t expect anything close to a repeat of the 27 gain for the sp 500 index in 2021 in the short term when the yield on the 10year us treasury note sank below 1 for most of 2020 it was well below the dividend yield on the sp 500 meaning that even cautious investors could generate more income from stocks than bonds according to data from cfra research going back to the beginning of the current 10year yield series in 1953 the sp 500 rose 21 on average in the 12 months following a quarter when 10year yields closed higher than dividend yields but if 10year yields are up to 2 larger than dividend yields–the 175 bond yield now is almost 05 larger than the sp 500’s yearend 127 dividend yield–that subsequent return shrinks to 71 “historically the 10year note has exceeded that of the sp 500 mainly because stocks offer growth and yield whereas bonds essentially offer just yield” says sam stovall cfra’s chief investment strategist “as the 10year yield rises and becomes more attractive then its going to possibly steal some interest from investors” the yield on 10year treasurys was larger than the sp 500’s dividend yield for only 37 quarters in cfra’s data–about 13 of the time–but the frequency has increased since the great recession the bond yield was higher for 50 consecutive years until september 2008 after stocks began to crash inflating their dividend yields for three quarters dividend yields were larger again in 2011 and 2012 after sp downgraded the united states’ credit rating for the first time then again in 201516 and 2020 each instance was followed by strong performance including a 23 return in 2009 30 in 2013 and 27 last year since those higher valuations cause dividend yields to fall those periods rarely last long and the two metrics flipflopped last year though bond yields have increased by 025 since the beginning of january to 175 creating the largest margin between the two since 2019 economists expect yearoveryear inflation to hit 7 in wednesday morning’s consumer price index report for december 2021 the federal reserve has also signaled it will raise interest rates three times this year which could push 10year yields over 2 dividend yields have gone the other direction slipping to a 20year low of 127 at the end of 2021 after staying around 2 for the previous decade according to sp data measured every quarter the last time it was this low was during the dotcom bubble at the turn of the century before steep declines accelerated in 2001 and 2002 the sp 500’s pe ratio has again risen to more than 30 about double its longterm average and stovall says pe multiples are also negatively correlated with 10year treasury yields it all adds up to expectations for an underwhelming 2022 and stocks are down 11 so far in january “dont be surprised that as the 10 year note rises this year as we anticipate it will we will probably have to endure pe multiple contraction” stovall says “were still anticipating a gain but we think its going to be more on the order of 5 versus 27 like we got last year”