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n. Illinois | The risk premium chart is showing the difference between the 12 month annual return on the S&P projected going forward minus that 10 year t-bill rate with the assumption that you would want a positive return on the stocks given their volatility vs the return you would get from 10 year t-bills which everyone assumes have zero credit risk (historically true but history isn't always a good predictor of the future)
What this chart is ignoring is the fact that from 2008 to 2022the Fed kept the 10 year t-bill at an artificially low rate with its printing of money which it used to buy the 10 year t-bill rate down. Since 2022 when it started to allow the 10 year t-bill rate to increase to what the market would be willing to actually hold them this is what has caused the difference between the two rates to narrow up.
One more observation its claims its the 12 month annual rate of return on foward earnings of the S&P 500. So that means its somebody's guess and not the actual rate of return of the S&P500. So how accurate are the forward earnings compared to actuals? I do not know do you?
In essence someone is claiming based upon this information that the returns to stocks are not worth what the return to a 10 year t-bill rate is given the high prices of the S&P 500 But the S&P 500 is massively influence by just a few Tech Stocks that do not reflect the whole market overall.
Good luck in finding that magical warning signal before we fall off the fiscal cliff. Like we did in 2008 or 2020 etc. | |
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Equity risk premium vs soybeans
