This Bullish Stock Indicator Is at a 58-Year High

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Stocks have a little extra bragging room now over bonds: an earnings yield on the Standard & Poor's 500 that has just hit a 58-year high.

While the 5.4 percent earnings yield—the inverse of the price-to-earnings ratio—is still considerably below its historical average, the number is nearly triple the 1.9 percent yield of the 10-year Treasury note.

Investors use the yields generally and this ratio in particular to determine how much reward they are getting for their risk. A low S&P 500 earnings yield, then, would suggest a market that is at or approaching expensive levels.

(Read More: As Stocks Rally, Market Flooded With New Shares)

A high yield ratio, on the other hand, points to a reasonably priced stock market—a higher yield needed to lure more investors—and markets that have approached the current levels do well.

In the past, whenever the earnings per share yield doubled the Treasury yield, the market averaged a 12 percent gain over the next year, with gains coming 71 percent of the time, according to S&P Capital IQ. The average ratio post-World War II is 1.6 times, versus the current 2.8.

"Since stocks are yielding nearly three times in EPS what bonds are yielding in interest, history suggests that stocks may be the more attractively valued asset class," said Sam Stovall, chief equity strategist at S&P Capital IQ.

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There are caveats, of course.

The Federal Reserve is keeping interest rates excessively low. Earnings have been dependent on low rates as companies have access to cheap capital, which means the corporate profit picture could change substantially if the current rate environment unwinds or inflation escalates.

The stocks-are-cheap meme, however, continues to gain momentum.

In a study that hedge fund guru David Tepper at Appaloosa Management cited Tuesday on CNBC, the New York Federal Reserve tested 29 models for stock risk.

(Read More: It's a 'My Cousin Vinny' Market, Bullish Tepper Says)

The New York Fed found that risk premiums ahead remain high, justified by, if nothing else, exceptionally low bond yields, which will probably continue as long as the Fed can justify them.

Another rule of valuation being tossed around is the so-called Rule of 20—developed by Jim Moltz at ISI— which states that an S&P 500 P/E plus the rate of inflation at 20 equals a fairly valued market. The 15 P/E plus the sub-2 percent inflation rate indicates this market has room to run before becoming fully valued.

"By that metric, I would argue that it makes the S&P 500 attractively valued," said Art Hogan, managing director at Lazard Capital Markets. "The tricky part is when you go 177 days without a pullback, everybody scratches their heads and says this can't be."

By CNBC's Jeff Cox. Follow Jeff on Twitter