Bank of America’s European equity strategist Sebastian Raedler warned investors that equity markets are pricing in far less risk than the macro backdrop warrants. He pointed to a 20‑year low risk premium as evidence that valuations have become detached from underlying economic fragility. Energy supply shocks, he said, are further eroding confidence in growth prospects.

Analysts have long tracked the risk premium as a barometer for how much extra return investors demand for bearing uncertainty. When that margin compresses to historic lows, it signals that market participants may be underestimating inflationary pressure, geopolitical tension and the lingering effects of recent supply chain disruptions. Raedler’s comment suggests a shift could prompt portfolio rebalancing toward defensive assets.

Investors who ignore the warning risk being caught in a correction should consider tightening risk controls and reviewing exposure to energy‑intensive sectors. Companies reliant on stable fuel supplies may face margin pressure if supply bottlenecks persist. Bank of America’s outlook adds to a chorus of caution from other strategists, reinforcing the view that equity valuations are due for a reality check in the near term for now.