S&P 500 at 3,900?

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Before rushing to buy equities after the recent sell-off, it's worth pausing for perspective.

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To return to the average 3.1% annual yield pick-up versus bonds — the level seen over the past 15 years — the S&P 500 would need to fall another 30% from yesterday’s close, based on the excess CAPE yield (ECY).

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Alternatively, the 10-year US Treasury yield would need to drop by 100bps to restore that relative value — a move that seems unlikely unless the US enters a recession. And if that happens, equities are likely to decline further anyway.

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All of this points to significant relative value in bonds over equities right now — especially in asset-based credit, which offers higher yield premiums, contractual cash flows, and the protection of collateral.

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These features make it far more resilient in a downturn.