Negative Real Earnings Yield Signal
Multi-level equity valuation signal based on inflation-adjusted earnings
Monitors equity valuations relative to inflation
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Key Insight
Real Earnings Yield measures whether equity earnings compensate investors for inflation. When Real EY turns negative, equities fail to provide real returns, signaling increasing levels of risk as valuations deteriorate.
Historical Chart
Signal Levels
Level 1: Warning
Real EY < +0.5%- • Equity earnings barely clear inflation
- • Valuation cushion is thin
- • Forward returns increasingly path-dependent
Reduce equity aggressiveness - tighten risk management
Level 2: Sell Zone
Real EY < -1%- • Equity earnings fail to beat inflation
- • Equity ownership relies on multiple expansion
- • Long-term real returns structurally weak
SELL / underweight equities
Level 3: Value Breakdown
Real EY < -2%- • Equity earnings materially lag inflation
- • Equity valuations fundamentally unsound
- • Markets depend entirely on liquidity or speculation
- • High probability of market reset
EXIT equities aggressively
Key Insight
This is a graduated signal system. As Real EY deteriorates, the severity of the warning increases. Each level represents a harder break in equity economics, requiring progressively more defensive positioning.
Historical Performance After Negative REY
Explore how the S&P 500 performed over the 2 years following each instance when Real Earnings Yield went negative.