The vanishing US equity risk premium

Five charts to start your day

There's an important signal in the market that investors shouldn't ignore. The equity risk premium – the extra return you get for choosing stocks over bonds – has nearly disappeared. In fact, it's approaching zero for the first time since 2002.

What does this mean? Traditionally, investors expect higher returns from stocks to compensate for their higher risk compared to safer Treasury bonds. But now, with the S&P 500 trading at 22 times expected earnings and Treasury yields above 4.4 percent, that risk premium has all but evaporated.