by Matthew Kerkhoff
Financial Sense
If you’re having trouble understanding why the stock market keeps heading higher, try having a BEER. At the very least, it’ll give you a different perspective on the relative valuations of between stocks and bonds.
BEER is Wall Street parlance for the Bond Equity Earnings Yield Ratio. While that may sound like a mouthful, the concept is not too difficult to grasp. At its heart, this ratio compares the current yield on Treasury Bonds to the earnings yield of stocks.
In case you’re not familiar with the term, the earnings yield is simply the inverse of the P/E ratio. It tells you the percentage of each dollar invested in a stock that is earned by a company.