Amid Worries, New Equity Risk Premium Data Explained
The Federal Reserve cut interest rates this past week for the first time since the 2008 financial crisis because of fears the U.S. economy was slowing. U.S.-China trade talks ended with no progress and President Trump announced additional tariffs on Chinese imports, deepening the trade war between the world's two largest economies and the chance of a global slowdown. Meanwhile, Friday's new jobs report showed continuing strength in the U.S. economy's 10-year old expansion, though slower growth could result in a cut in profit expectations in the weeks ahead, as the stock market continued to hover near its all-time high.
Amid the worries investors face, here's a reminder about this important fundamental financial concept.
To quantify the equity risk premium, here are the numbers: Over the 21½ years ended June 30th, 2019, the risk-free 90-day U.S Treasury Bill averaged an annual return of 1.94%, compared to a 7.30% annualized return on the S&P 500 stock index, according to economist Craig Israelsen, whose research we license to share with clients and friends.
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