Inflation affects both the numerator and denominator of our fundamental pricing equation:

Price = E [Earnings * (1+ growth rate)] / (1+return)

With that in mind, I saw the following comment on twitter:

S&P 500 closed at 19.6x 2022 consensus EPS of $225, equal to a 5.10% earnings yield (E/P ratio). That compares to a 10yr TY of 1.94%. That +3.16% equity spread between S&P earnings and 10yrTY would rank in the widest (cheapest) 1/3 of equity spreads since 1977 (avg spread +2.5%).

Do you think it makes sense to compare earnings yields (Earnings/Price or E/P) to bond yields? Why or why not? In your answer make sure to refer to the fundamental pricing equation.