Deep Store

Monthly estimate of the implied equity risk premium for the US market. Built by solving a 2-stage augmented dividend-discount model: take the trailing-12-month S&P 500 cash yield (dividends + buybacks) plus analyst growth estimates, find the discount rate that makes the implied price equal today's index level, then subtract the long bond yield. Monthly, Sep 2008 through current month. Source: Aswath Damodaran's NYU Stern data page (ERPbymonth.xlsx) — methodology and file are his.

Why it matters: This is the most academically defended version of "are equities cheap relative to bonds?" Where Fed Model and Excess CAPE Yield use earnings yield as a proxy for expected return, this method builds the expected return from current cash flows + analyst growth — closer to what an institutional investor would actually compute. When the premium is high, equities are pricing in a large extra return for taking equity risk; when it's low, equities are expensive vs. bonds.

How to read it: Post-2008 range is roughly 4-7%. Spikes above 6% during stress (2011 European crisis, 2018 Q4, March 2020, 2022 inflation shock). Today's reading sits in the historical normal band. Compare with ECY on the same dashboard — when they disagree, the implied ERP is usually closer to "what equity buyers actually demand" since it incorporates expected growth.

Caveats: History only goes back to Sep 2008 — the modern file's earliest reading. So percentile context is against ~17 years of post-financial-crisis history, which itself is an unusual macro regime (ZIRP era + recovery). Read with that in mind; an "average" reading by this distribution may still be historically extreme on a longer scale.