Global Equity Risk Premia - 2024-08-04

For the US equity premium, we have added a new historical marker at 0.12% on July 2, 2024. That's the lowest since May 2002, and we associate it with the peak of the Biden senility crisis -- a moment in which it was clear that he was incapable of running for president, but hadn't stood down from the ticket yet. Yes, it is tempting to associate this with the peak of expectations that Trump would win the election. Meanwhile, the US ERP has corrected upward significantly, especially late last week. Yes, it is tempting to associate this with the consensus now, with Biden off the ticket, that Trump will lose. Or it could be something else entirely, including a renaissance of recession fears. But the US remains the most over-valued equity market in the world in ERP terms, with overvaluation concentrated in large-cap growth. But the correction in the Magnificent Seven has raised the ERP for the other 493 stocks in the S&P 500 almost back up to the pre-GFC mean, not a particularly unusual level.