Aswath Damodaran breaks it down: tariffs, ERP spikes, and why your cash needs now matter

The tariff shock is rippling through global markets and Aswath Damodaran sees early signs of something bigger.

“Stocks, T.Bonds and gold were all up (a most unusual combination); the ERP and spreads dipped,” he posted on X. His warning: we may be entering another crisis cycle, where risk premiums shift faster than fundamentals can keep up.

Between April 7 and April 11, the S&P 500 surged over 300 points, gold gained more than $250, and Bitcoin added nearly $4,100. Treasury yields climbed as well—from 4.24% to 4.49%. Yet, despite the rally, equity risk premiums (ERP) slipped from 5.07% to 4.77%, and expected stock returns ticked lower—signaling uneasy recalibration beneath the surface.

Damodaran, who has tracked ERP through past meltdowns, believes the crisis playbook is once again in motion: a trigger, asset repricing, ripple effects in the real economy, and a long reset. 

In the two days after the U.S. tariff announcement, ERP jumped from 4.57% to 5.08%. Bond spreads widened, and commodity prices slumped—early signs, he says, of a slowdown in motion.

He’s also skeptical of neat post-crisis narratives. 

“Each crisis is a sample size of one,” Damodaran cautions, noting that investors, regulators, and researchers often draw the wrong conclusions in hindsight. Markets price risk in real time—and rarely follow a script.

But it’s his personal postscript that offers the most grounded advice. In times of crisis, Damodaran writes, investors typically split into three groups: the doomsayers who’ve been calling for collapse for a decade, the knee-jerk contrarians who see every dip as a buying opportunity, and the indecisives who wait for clarity that never comes.

He urges readers to resist all three. “The market becomes a pricing game, where perception gets the better of reality,” he writes. The only rational response, he suggests, is deeply personal—based on cash needs, time horizon, and one’s own investment philosophy.

“If you need the cash soon, get out. If you don’t, wait—but know why you’re waiting.” His own plan: continue calculating ERP daily “for as long as we’re in crisis-mode” and let the data—not panic or dogma—guide the path forward.