Fed warns stocks offer unusually small edge over Treasury bonds

Federal Reserve officials warned that the S&P 500’s equity risk premium is near its lowest level since the dot-com bubble. The measure compares the expected return from stocks with inflation-adjusted 10-year Treasury yields, making bonds relatively more attractive when the premium is low.

The S&P 500 has stayed below a 2.5% equity risk premium for five months, a stretch last seen in 2002. Three officials supported a quarter-point rate increase at the Fed’s July meeting, while inflation remained above the central bank’s 2% target. Historically, stocks have often declined after the first increase in a new tightening cycle, though past market corrections were eventually recovered.

Read the full story at The Globe and Mail.