Equity risk premium falls to 2002 levels. What it means for stocks
Yahoo Finance ·
Equity risk premium falls to 2002 levels. What it means for stocks Sam Boughedda Fri, September 11, 2026 at 10:02 AM EDT 1 min read JPM ^GSPC US10YT=X US500 Investing.com -- JPMorgan warned in a note this week that the equity risk premium, the extra expected return investors demand for holding stocks over bonds, has shrunk to its lowest level since 2002, with implications for how equities behave from here. Strategist Nikolaos Panigirtzoglou said the S&P 500 equity risk premium has fallen to about 2.1% on the bank's estimates, roughly 100 basis points below historical averages, driven by this year's equity rally and a steep rise in real bond yields. That has taken it below the previous cycle low of 2.4% seen in 2007. He drew three implications. First, stocks are likely to become more sensitive to moves in bond yields, echoing the 1974-to-1998 period of low risk premia. "Going forward equity markets could exhibit higher sensitivity to bond yields than the one exhibited over the past couple of decades," Panigirtzoglou wrote. Second, he said the shrinking premium strengthens the case for bonds over equities in long-term asset allocation. JPMorgan's metrics are said to show non-bank investors, as well as G4 pension funds and insurers, are the most overweight equities relative to bonds since 2002, which could prompt more pronounced rebalancing into bonds if real rates drift higher. Third, the shift is expected to reinforce the positive bond-equity correlation that emerged in 2022 after the inflation shock. That, Panigirtzoglou said, poses a sustained headwind for the "risk parity trade," which relies on bonds to hedge equity risk, and could boost demand for direct equity hedges such as puts. Equity risk premium falls to 2002 levels. What it means for stocks This sector is 'poised for a big, beautiful year': Truist Morgan Stanley CIO survey: Why AI hype isn't boosting 2026 IT budgets
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