https://tokenist.com/dwindling-equity-risk-premium-can-lead-to-a-severe-stock-pullback/
Soaring bond yields, driven by the Federal Reserve's hawkish stance, have caused the equity risk premium to plummet to its lowest level since 2002, signaling a potential sell-off in equities. US Treasury yields have reached record highs as the Fed's tightening policies put immense pressure on bonds. This surge in yields has eroded the equity risk premium, a key measure for investors assessing stock returns relative to bonds.
The bond market has been in turmoil, with benchmark US yields hitting a 16-year high, prompted by concerns over the Fed's commitment to higher interest rates. Despite the central bank's aggressive stance to combat high inflation, the August inflation rate remained significantly above the 2% target at 3.7%.
The strong US labor market, with 336,000 jobs added in September, further cemented the Fed's determination to maintain high interest rates. These factors have exacerbated the bond market's struggles and pushed the equity-risk premium to a two-decade low.ć
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