In US equity markets, for instance, price declines in late 2018 were accompanied by only small downgrades to analysts' expectations for earnings growth over the medium term. This implies that the willingness of investors to pay for earnings declined materially (Graph 3).
In other words, the equity risk premium went up.2 Similarly, in corporate bond markets, future default rates expected by analysts hardly moved over this period. And yet spreads widened sharply, reflecting an increase in credit risk premia. While early 2019 has seen a partial retracement of these moves, both equity and credit risk premia remain higher than a year ago.