♦SP500 Earning Yield is about 3.78% ♦T Notes Yield is about 2.66% so if you believe in fundamental analysis, then SP500 is about 29% cheaper than T Notes.
Wow... wrong on all fronts... well.. maybe not all. You can't just compare 2 different assets classes like that.
This is so called "Fed model" proposed by Ed yardeni in late 90's and has been discredited since. For starter's, S&P earnings yield is in "real" terms, where as T-note yield is nominal.
S&P earnings yield is certainly a bit more real than the definitely nominal return on treasuries. However, there is a lot more to the discussion of "relative value" than just the headline yield differential.
Also, why compare with the T-note yield? If you treat your SP500 as a perpetuity with 3.78% yield, its duration comes out to arnd 27.5 years. Surely, in light of that, you should be looking at SP500 vs 30y, no?
https://www.aqr.com/library/journal-articles/fight-the-fed-model http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.568.1656&rep=rep1&type=pdf
In my opinion, even that is an illusion. Empirical fit holds true only in low inflation environment. I have not looked at the data of 30 year yield and earnings yield in the 70's. Ten year counterpart did not fit well at all.