US Equities’ Valuation Premium Brings Stagflation Era Flashbacks

Investors are demanding the highest premium to own stocks over bonds in more than two years, one metric shows, as an oil price surge sparked by the Iran war raises fears the US economy could lapse into a 1970s-style stagflationary environment.

The gauge in question is a variation of the equity risk premium — which shows the extra compensation investors expect to receive for holding stocks instead of risk-free Treasuries. Calculated by Aswath Damodaran, a New York University finance professor known for his expertise on valuation, the measure stood at nearly 4.8% at the beginning of April, its highest level since late 2023.