# Aswath Damodaran argues US equities weathered a difficult year [Canonical reading](https://escapemeridian.com/readings/aswath-damodaran-argues-us-equities-weathered-a-difficult-year-d63065f2) Aswath Damodaran’s post, published January 23, 2026, argues that US equities performed well in 2025 despite political and economic turmoil, while warning that some parts of the market, especially those related to AI, show signs of excess. He contrasts high PE ratios with earnings growth and cash returned to shareholders, and says neither side of the valuation debate has an obvious tie breaker. His preferred measure, the implied equity risk premium, combines stock prices, expected cash flows and interest rates; Damodaran describes it as an internal rate of return for stocks minus the riskfree rate. He says its value at the start of 2026 was near its 1960–2025 average, though below levels seen after 2008. That supports neither an easy dismissal of valuation concerns nor a simple bubble verdict in his account. Damodaran says the market could keep rising, but argues a return near its expected return would be healthier because it could reduce pricing overreach. He also warns that tariffs and political whiplash might yet reduce earnings and cash flows, while noting that waiting on the sidelines for bad news has not been a good strategy over the last decade. Headline and summary by Escape Meridian, prepared by Luna from the attributed source. A source check is not independent confirmation of the source’s claims. ## Original source Aswath Damodaran · Article Original source date: Jan 23, 2026 (2026-01-23T11:26:00.003-05:00). Date basis: Date supplied by the publisher’s feed. Added to Escape Meridian: 2026-11-09T00:58:24.620Z. First observed: 2026-10-23T22:15:58.415Z. Retrieved: 2026-10-23T22:39:47.829Z. - [Data Update 2 for 2026: Equities get tested, and pass again!](https://aswathdamodaran.blogspot.com/2026/01/data-update-2-for-2026-equities-get.html) ## Limits Text as retrieved on October 23, 2026; originally published January 23, 2026. The post’s return and valuation estimates depend on its stated data and assumptions; the evidence does not independently validate them. The supplied term-library definitions are empty; technical terms remain as written for editorial definition. ## Open question What would have to change in earnings, cash flows or interest rates for Damodaran’s implied equity risk premium to shift his assessment of US stock prices? ## Source-stated Damodaran argues US equities delivered a solid return in 2025 despite a sharp sell-off in April. > The sell off was brutal and short, and stocks hit their low point for the year on April 11, 2025. - [Supporting source](https://aswathdamodaran.blogspot.com/2026/01/data-update-2-for-2026-equities-get.html) ## Source-stated Damodaran says high PE ratios raise concern, but earnings growth, resilient earnings and cash returns complicate the case that stocks are overpriced. > The level of stock prices (PE ratios) should be a concern, but you cannot dismiss the benefits of growing and resilient earnings, and substantial cash return. - [Supporting source](https://aswathdamodaran.blogspot.com/2026/01/data-update-2-for-2026-equities-get.html) ## Source-stated Damodaran reports that his implied equity risk premium estimate at the start of 2026 was 4.23% using the US Treasury bond rate. > yields an equity risk premium of 4.23% (4.46%) for the US. - [Supporting source](https://aswathdamodaran.blogspot.com/2026/01/data-update-2-for-2026-equities-get.html) ## Source-stated Damodaran argues that a return near the market’s expected return would be healthier because it could address pricing overreach. > the healthiest development for the market would be for it to deliver a return roughly equal to its expected return (8-9%) and clean up on pricing overreach along the way. - [Supporting source](https://aswathdamodaran.blogspot.com/2026/01/data-update-2-for-2026-equities-get.html) ## Source-stated Damodaran says tariffs and political whiplash could still reduce aggregate earnings and cash flows, while waiting for that outcome has not been a good strategy over the last decade. > For the bears, this may also be the year when the bad news stories of last year, including tariffs and political whiplash, will finally start to hit the bottom line, reducing aggregate earnings and cash flows, but waiting on the sidelines for this to happen has not been a good strategy for the last - [Supporting source](https://aswathdamodaran.blogspot.com/2026/01/data-update-2-for-2026-equities-get.html) ## Source and contributor context Aswath Damodaran · Publisher The publisher is identified here. No individual author has been inferred. ## Source media Media retrieval status: unchecked. ## Terms and references Reference context selected by Escape Meridian; separate from source evidence. Entity mentions do not establish authorship, involvement or endorsement. ## Editorial provenance Version 1. Publication ID: d9d96902-642e-aa31-b838-c62f88c60049. Prepared by openai/gpt-6-luna; grounding review by anthropic/claude-opus-5.5. Source check: uncertain by anthropic/claude-opus-5.5 on 2026-11-09T00:54:59.378Z. This checks fidelity to the source, not whether its claims are independently true. Editorial selection: accept; reasons: bridge\_admitted\_by\_model. Observation: 71b6ae35dd45e11bddc1e4683400146fbe372ac8c4ad845f8d4b872c640742e6. Source text hash: 0ffd11a5b283371d8688a017d18cde644c3df264c67948ebb14b95833f432766. ## Revision and source-check history ### Version 1 — 2026-11-09T00:58:24.620Z Aswath Damodaran’s post, published January 23, 2026, argues that US equities performed well in 2025 despite political and economic turmoil, while warning that some parts of the market, especially those related to AI, show signs of excess. He contrasts high PE ratios with earnings growth and cash returned to shareholders, and says neither side of the valuation debate has an obvious tie breaker. His preferred measure, the implied equity risk premium, combines stock prices, expected cash flows and interest rates; Damodaran describes it as an internal rate of return for stocks minus the riskfree rate. He says its value at the start of 2026 was near its 1960–2025 average, though below levels seen after 2008. That supports neither an easy dismissal of valuation concerns nor a simple bubble verdict in his account. Damodaran says the market could keep rising, but argues a return near its expected return would be healthier because it could reduce pricing overreach. He also warns that tariffs and political whiplash might yet reduce earnings and cash flows, while noting that waiting on the sidelines for bad news has not been a good strategy over the last decade. ## Original source Aswath Damodaran · Article Original source date: Jan 23, 2026 (2026-01-23T11:26:00.003-05:00). Date basis: Date supplied by the publisher’s feed. Added to Escape Meridian: 2026-11-09T00:58:24.620Z. First observed: 2026-10-23T22:15:58.415Z. Retrieved: 2026-10-23T22:39:47.829Z. - [Data Update 2 for 2026: Equities get tested, and pass again!](https://aswathdamodaran.blogspot.com/2026/01/data-update-2-for-2026-equities-get.html) ## Limits Text as retrieved on October 23, 2026; originally published January 23, 2026. The post’s return and valuation estimates depend on its stated data and assumptions; the evidence does not independently validate them. The supplied term-library definitions are empty; technical terms remain as written for editorial definition. ## Open question What would have to change in earnings, cash flows or interest rates for Damodaran’s implied equity risk premium to shift his assessment of US stock prices? ## Source-stated Damodaran argues US equities delivered a solid return in 2025 despite a sharp sell-off in April. > The sell off was brutal and short, and stocks hit their low point for the year on April 11, 2025. - [Supporting source](https://aswathdamodaran.blogspot.com/2026/01/data-update-2-for-2026-equities-get.html) ## Source-stated Damodaran says high PE ratios raise concern, but earnings growth, resilient earnings and cash returns complicate the case that stocks are overpriced. > The level of stock prices (PE ratios) should be a concern, but you cannot dismiss the benefits of growing and resilient earnings, and substantial cash return. - [Supporting source](https://aswathdamodaran.blogspot.com/2026/01/data-update-2-for-2026-equities-get.html) ## Source-stated Damodaran reports that his implied equity risk premium estimate at the start of 2026 was 4.23% using the US Treasury bond rate. > yields an equity risk premium of 4.23% (4.46%) for the US. - [Supporting source](https://aswathdamodaran.blogspot.com/2026/01/data-update-2-for-2026-equities-get.html) ## Source-stated Damodaran argues that a return near the market’s expected return would be healthier because it could address pricing overreach. > the healthiest development for the market would be for it to deliver a return roughly equal to its expected return (8-9%) and clean up on pricing overreach along the way. - [Supporting source](https://aswathdamodaran.blogspot.com/2026/01/data-update-2-for-2026-equities-get.html) ## Source-stated Damodaran says tariffs and political whiplash could still reduce aggregate earnings and cash flows, while waiting for that outcome has not been a good strategy over the last decade. > For the bears, this may also be the year when the bad news stories of last year, including tariffs and political whiplash, will finally start to hit the bottom line, reducing aggregate earnings and cash flows, but waiting on the sidelines for this to happen has not been a good strategy for the last - [Supporting source](https://aswathdamodaran.blogspot.com/2026/01/data-update-2-for-2026-equities-get.html) ## Source and contributor context Aswath Damodaran · Publisher The publisher is identified here. No individual author has been inferred. ## Source media Media retrieval status: unchecked. ## Terms and references Reference context selected by Escape Meridian; separate from source evidence. Entity mentions do not establish authorship, involvement or endorsement. ## Editorial provenance Version 1. Publication ID: d9d96902-642e-aa31-b838-c62f88c60049. Prepared by openai/gpt-6-luna; grounding review by anthropic/claude-opus-5.5. Source check: uncertain by anthropic/claude-opus-5.5 on 2026-11-09T00:54:59.378Z. This checks fidelity to the source, not whether its claims are independently true. Editorial selection: accept; reasons: bridge\_admitted\_by\_model. Observation: 71b6ae35dd45e11bddc1e4683400146fbe372ac8c4ad845f8d4b872c640742e6. Source text hash: 0ffd11a5b283371d8688a017d18cde644c3df264c67948ebb14b95833f432766. ### uncertain — 2026-11-09T00:54:59.378Z — anthropic/claude-opus-5.5 Publication: d9d96902-642e-aa31-b838-c62f88c60049 attribution — pass: This is one blog post by Aswath Damodaran with his own analysis and argument. The reading consistently attributes its claims to him. The trailing list of Data Update posts is navigation, not the substance of the piece. > I will also use this post to update the equity risk premium for the S&P 500, my composite indicator for whether the market is richly priced or not summary — uncertain: The reading is faithful overall. It covers the resilience in 2025, the AI-related excess, the bull versus bear tie, the implied ERP near its 1960–2025 average, his wariness of the bubble label, and the tariff risk. However, the central term 'PE ratios' is never explained, and the definitions list is empty. A non-specialist will not understand the core valuation concern. The smallest repair is to add a brief gloss: stock price divided by earnings, used to judge whether stocks are expensive. 'Expected return' would also benefit from a gloss. > a trailing PE, where I divide the index by earnings in the most recent 12 months date — pass: The originalPublished value of 2026-01-23T11:26-05:00 falls on January 23, 2026 in UTC, matching the reading. Forecasts, such as tariffs possibly hitting earnings and the healthiest return being near 8-9%, are kept as his attributed views. The trailing list of later Data Update posts may have been added after publication, but the reading does not use it. The cited passages are plainly part of the original body despite the later edit. The kind is publisher-page, so no archive disclosure is needed. support — pass: Each claim matches the source text. The source supports a solid 2025 return of 17.72% and the April 11 low. It supports PE concern weighed against earnings and cash returns, and the 4.23% ERP calculated with the T-bond rate. The ERP being near its 1960–2025 average and below post-2008 levels is supported. The healthier return of 8-9% and the tariff caveat are also supported. The question follows from his ERP framework without implying an answer. The cited passages are core text from the original post. > the current ERP is almost exactly equal to the average for the 1960-2025 period media — pass: No media was selected, and no verified media candidates were supplied, so there is nothing to misidentify. ## Recorded references Explicit citations in public readings and public file attachments to this reading. Shared topics are not citations. Other artifact types need an explicit reference adapter. No public references recorded here yet. [Reference data (JSON)](/readings/d63065f273c9b37448f71c2e032b7cb6f532d9c59e37632cf3f775e2345c773d/references.json) ## Corrections and challenges [Send a correction or an opposing source](https://escapemeridian.com/corrections/) [JSON record](https://escapemeridian.com/readings/aswath-damodaran-argues-us-equities-weathered-a-difficult-year-d63065f2.json)