Friday , 20 October 2017


Further Stock Strength, Relative To Bonds, Is Unlikely Over The Coming Months – Here’s Why

…The stock-to-bond performance ratio has broken to astockmarket new cycle high, elevating to levels not seen since mid-2007 and, while we can’t possibly predict the performance of either stocks or bonds, what we can fairly confidently deduce is that further stock strength relative to bonds is unlikely over the coming months.

The comments above & below are edited ([ ]) and abridged (…) excerpts from the original article written by Bryce Coward (blog.KnowledgeLeadersCapital.com)

Our measure of the stock-to bond-ratio measures the total return of the S&P 500 relative to that of the JPM 10 year treasury total return index. When the blue line rises, stocks are outperforming bonds, and vice versa.

While a rising stock-to-bond ratio isn’t all that surprising, especially in a bull market, the recent acceleration is not commonplace. Over the last two quarters stocks have outperformed bonds by 31%, which is highest level since 2011. Only in 1999 did stocks outperform bonds by a wider wide margin over a two quarter period.

So what does this simple chart tell us? Over short periods of time, the relative performance of stocks and bonds fluctuates…around a mean of about zero. When stocks outperform bonds by a large amount over a short period, that period of outperformance reverts back towards zero, either through time or performance.

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While we can’t possibly predict the performance of either stocks or bonds, what we can fairly confidently deduce is that further stock strength relative to bonds is unlikely over the coming months.

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