Stocks vs Bonds: Is the Equity Risk Premium Negative?
Yes, on the simple measure this site uses, the equity risk premium is negative today. The S&P 500's earnings yield is 3.87% (a P/E of 25.9) while the 10-year Treasury pays 4.98%, so stocks yield 1.11 percentage points less than a risk-free bond. Yields are as of October 29 to 30, 2026.
That sounds alarming, but the history says it is context, not a timing signal: since 1957 the premium has had only a weak link to what stocks did over the next ten years.
What is the equity risk premium, and how is it calculated here?
The equity risk premium is the extra return stocks offer over a risk-free bond for taking the risk. The version on this site is the simplest one: the S&P 500's trailing earnings yield (earnings divided by price, the inverse of the P/E) minus a Treasury yield, in percentage points. See equity risk premium and risk-free rate in the glossary.
With a P/E of 25.86, the earnings yield is 100 divided by 25.86, or 3.87%. Subtract 4.98% and you get -1.11. Put the other way, the 10-year Treasury has a “P/E” of 100 divided by 4.98, or 20.1, cheaper per dollar of income than the stock market at 25.9.
What does the premium look like against three different bonds?
| Compared with | Yield | Stocks yield 3.87%, so the premium is |
|---|---|---|
| 10-year Treasury | 4.98% | -1.11 points |
| 3-month Treasury bill | 4.00% | -0.13 points |
| 10-year TIPS (inflation-protected) | 2.63% | +1.24 points |
The TIPS version is positive because a TIPS yield is already after inflation, while a stock's earnings yield is not. It is the fairer comparison only if you think earnings keep up with inflation, and it is still not a forecast. Treasury yields as of October 29, 2026 (FRED); stocks as of October 30, 2026 (Robert Shiller's data via multpl.com).
For why the same bond can look generous or stingy depending on inflation, see what a real interest rate is.
How often has the premium been negative before?
The monthly series starts in April 1953. In 389 of 882 months, or 44%, the premium was below zero. It was last positive in December 2023, so the current negative run is 33 months old as of September 2026. The long negative stretches (six months or more) were:
| Stretch | Months | Lowest reading |
|---|---|---|
| Oct 1968 to Oct 1971 | 37 | -1.45 (Jan 1970) |
| Dec 1971 to May 1973 | 18 | -0.94 (Sep 1972) |
| Oct 1980 to May 1995 | 176 | -4.44 (Sep 1987) |
| Jul 1995 to May 2003 | 95 | -3.22 (Jan 2000) |
| Oct 2008 to Oct 2009 | 13 | -2.91 (Jun 2009) |
| Jan 2024 to now | 33 so far | -1.14 (Sep 2026) |
The 15-year stretch from 1980 to 1995 includes a market that rose strongly, so a negative reading has not meant a falling market. Measured against TIPS, the premium was negative in only 11 of 286 months since 2003.
Average yearly price change of the S&P 500 over the next ten years, by the premium at the start. Price only, 718 monthly windows from January 1957 to October 2016.
Does the equity risk premium predict stock returns?
Only weakly. Across 718 ten-year windows, the correlation between the premium at the start and the S&P 500's annualised price change over the next ten years is +0.12, a weak link, and the average window gained 7.2% a year. Using the TIPS version instead gives +0.32 over 166 windows, a moderate one.
| Premium at the start | Months | Average next-10-year price change | Range |
|---|---|---|---|
| Below 0 | 352 | 7.3% a year | -5.1% to +16.6% |
| 0 to 2 | 204 | 4.5% a year | -2.2% to +12.8% |
| 2 to 4 | 118 | 10.3% a year | +2.8% to +13.7% |
| 4 or more | 44 | 10.7% a year | +6.4% to +14.3% |
Higher starting premiums did come with higher averages (10.3% and 10.7% a year) and a better floor, with no ten-year window below +2.8%. But months that started negative still averaged 7.3%, more than months that started between 0 and 2. The overlapping windows share most of their years, so there are far fewer independent observations than 718, and the link is context, never a timing signal.
So what is a negative premium good for?
It says stocks are priced richly against bonds today, which is one way of describing a high P/E. It does not say when anything changes. Fixed-income investors now earn more than stocks yield, so a stock's price has to rise on earnings growth, not on income.
Read it alongside other gauges. The Crash Indicator's valuation panel shows the premium next to CAPE and the Buffett indicator, and the equity risk premium page has the live numbers and the full history. For how rates move share prices, see how interest rates affect stock prices.
Equity risk premium FAQ
Does a negative equity risk premium mean a crash is coming?
No. The premium was negative in 44% of months since 1953, including a 176-month stretch from 1980 to 1995 when stocks rose strongly. Its link to the next ten years of returns is weak (a correlation of +0.12), and it is not a timing tool.
Which Treasury yield does the premium use?
This site uses the 10-year Treasury as the main version because it matches the long horizon of stocks. The 3-month bill and the 10-year inflation-protected Treasury (TIPS) give two other readings, and as of October 29, 2026 they are -0.13 and +1.24 points.
Why use the earnings yield instead of the dividend yield?
The earnings yield counts all profit, paid out or kept in the business, so it compares more fairly with a bond's interest. The S&P 500's dividend yield is only 1.07% as of October 30, 2026.
Can the premium be negative and stocks still beat bonds?
Yes. Earnings can grow while a bond's coupon stays fixed. When the premium started below zero, the S&P 500 price rose an average 7.3% a year over the next ten years, though the range ran from -5.1% to +16.6%.
Is the equity risk premium the same as the expected return of stocks?
No. The simple version used here is a snapshot of today's earnings against today's yield. A true expected premium would need a forecast of future earnings growth and risk, which nobody observes.