Exploring the Impact of Low Equity Risk Premium on Investment Choices

The low equity risk premium indicates a near-zero spread between the earnings yield on the S&P and the yield on the 10-year, making equities less attractive compared to debt. This rarity in the market suggests that currently, the value proposition between debt and equities favors debt due to the expensive cost of money, limiting borrowing for growth in equities. Consequently, there might be less growth in equities compared to debt instruments like bonds, which provide a stable income with less risk of default. This shift presents a challenge for equity investments but not for debt investors who prioritize steady income over total return.