Stocks don’t have much room for earnings to disappoint when Treasury yields are sitting around 5%.

There is a weird comparison happening in the stock market right now.

A screen of 486 profitable U.S. companies worth more than $10 billion found that 335 of them, or 69%, have an earnings yield below what a 10-year Treasury is paying.

The median P/E in that group was 26.7.

That means the median company is earning roughly 3.75% on the price investors are paying for it, while the 10-year Treasury is around 5%. The S&P 500 itself is sitting at roughly a 3.84% earnings yield.

Obviously, stocks aren’t bonds.

A Treasury gives you a fixed coupon.

A company can grow.

It can raise prices.

It can buy back shares.

It can reinvest today’s earnings and make tomorrow’s earnings much larger.

That is the entire reason someone would accept a lower earnings yield from a stock.

But look at what that means.

You are paying the premium today and asking future earnings to justify it.

And investors are being given plenty of reasons to believe those earnings will arrive.

FactSet’s latest numbers show S&P 500 earnings growth running at 37.9% for the second quarter, with analysts expecting 27.3% earnings growth for all of 2026.

That’s not imaginary growth.

Corporate earnings really are expanding.

But it also creates a strange setup.

The higher the stock price gets relative to today’s earnings, the more future growth has to do the work.

At a 3.75% earnings yield, you don’t have much room for earnings to disappoint if Treasury yields are sitting around 5%.

And now the bond market is making that comparison harder to ignore.

The 10-year Treasury hit 5.01% on Sept. 16 and was still around 5% on Sept. 18.

So the stock market doesn’t just need companies to keep making money.

It needs them to make a lot more money later.

That distinction matters.

Because if earnings keep exploding, today’s valuation can eventually look reasonable.

If earnings growth slows, the math changes quickly.

You can lose money two ways.

Earnings can fall.

Or earnings can keep rising while investors decide they aren’t willing to pay 26, 27, 28 times those earnings anymore.

That’s why the Treasury yield matters so much here.

The 5% Treasury doesn’t need AI spending to double.

It doesn’t need Nvidia to beat estimates.

It doesn’t need corporate margins to expand.

It just pays.

Stocks have to earn their way out of the discount.

And right now, a huge part of the market is asking investors to believe that future earnings growth will be good enough to justify paying less earnings today than the government is paying you to lend it money.

Maybe it will.

But that’s the bet.

And the higher valuations go, the less forgiving that bet becomes.