Stocks have not been this attractive vs bonds since the 1950s, according to Bank of America

Published Mon, Mar 9 20208:20 AM EDTUpdated Mon, Mar 9 20204:03 PM EDT

(This story is for CNBC Pro subscribers only.) The cascading decline in stocks over the last one month, along with plunging yields, have brought equity valuations down to cheap levels relative to bonds rarely seen in history, according to Bank of America. The firm noted that the ratio between the dividend yield on the S & P 500, which is currently around 2%, and the yield on the 10-year Treasury, which sits around 0.426%, jumped to 2.5 times. "Stocks have not been this attractive vs. bonds since the 1950s," wrote Savita Subramanian, Bank of America Securities equity and quant strategist, in a note to clients. Amid a massive sell-off in stock futures and oil prices tanking, bond yields plunged to historic lows on Monday. The yield on the benchmark U.S. 10-year Treasury briefly touched an all-time low of 0.318% in overnight trading investors continued to flee risk assets like stocks in favor of the safety of bonds between an all-out oil price war and fears surrounding the deadly coronavirus. Despite a volatile time in the markets, this 30 basis point drop in the 10-year Treasury positions the relationship between stocks and bonds to levels not seen in 70 years, the firm noted. The last time stocks provided a yield this much higher than bonds was in 1950 and the prior three peaks were followed by the S & P 500 outperforming the 10-year Treasury by a remarkable 31 basis points on average over the subsequent 12 months. "And since 1951 when the ratio was this high, stocks have returned 19x more than the Treasury," said Subramanian. But uncertainty reigns on Wall Street and 1,000 point swings in the market have become commonplace, which has caused panic selling in the last few weeks. The Dow Jones Industrial Average cratered more than 2,000 points on Monday. The S & P 500 dropped 7,6% and the Nasdaq Composite fell 7.3%. Subramanian said even if the market experiences an earnings recession, a 20% decline in earnings, the payout ratios would only rise to 50% from 40%. In other words, most companies outside of energy would be able to pay their dividend obligations even if there is a big earnings decline. "Energy currently offers the highest div. yield (5.1%), but given continued risk to earnings, we recommend 'safer' yield sectors, such as Utilities (3.2%)," Subramanian added. — with reporting from CNBC's Michael Bloom.

A worker is seen on the floor of the New York Stock Exchange (NYSE) in New York, U.S., February 28, 2020.

Brendan McDermid | Reuters

(This story is for CNBC Pro subscribers only.)

The cascading decline in stocks over the last one month, along with plunging yields, have brought equity valuations down to cheap levels relative to bonds rarely seen in history, according to Bank of America.