Equity risk premium above historical averages

Sources: Bloomberg and Wells Fargo Investment Institute. Monthly data from January 1, 1962 to March 31, 2022. Equity risk premium calculated by subtracting the 10-year Treasury yield from the S&P 500 Index earnings yield. The S&P 500 Index is a market-capitalization-weighted index considered representative of the U.S. stock market. An index is unmanaged and not available for direct investment. Yields represent past performance and fluctuate with market conditions. Current yields may be higher or lower than those quoted above. Past performance is no guarantee of future results. Investing in stocks involves risk and their returns and risk levels can vary depending on prevailing market and economic conditions. Although Treasuries are considered free from credit risk they are subject to other types of risks. These risks include interest rate risk, which may cause the underlying value of the bond to fluctuate.

Key Takeaways

  • Equity risk premium has increased after falling to its lowest level in the past decade last year.
  • Today’s positive equity risk premium signals expectations for a positive return over the next 12 months.