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US Stocks Delay Bond Gains
The article focuses on measuring the "equity risk premium" as a key factor in assessing the attractiveness of the stock market compared to safe government bonds, particularly U.S. Treasury bonds with inflation-adjusted yields. It indicates that the current premium is less than one dollar for every 100 dollars invested in the S&P 500 index, suggesting that the margin of return for bearing market risk has become minimal. The index's earnings yield stands at 3.8%, while Treasury bonds yield 2.86%. The premium has declined from a historical average of approximately 3.5% to below 1%. This decrease is primarily due to rising real yields on bonds and their diminished appeal relative to stocks, reflecting a significant shift in the relationship between the two markets. It suggests that equities no longer offer a substantial excess return over Treasury bonds as they did in previous periods.
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