Can Stocks Beat Bonds Again?

We all know this is one of the longest and largest bull markets ever, with the bull set to turn nine years old next month. Under the surface, another incredible streak is also taking place. Ryan Detrick, Senior Market Strategist, points out that “Few realize stocks have beaten bonds for six consecutive years now. Should stocks once again top bonds, it would be stocks’ longest winning streak over bonds in history.”

Historically, stocks (measured by the S&P 500 Index) have beaten bonds (measured by the 10-year Treasury bond) six years in a row on just two occasions, most recently from 1994 to 1999. With the S&P 500 barely positive and most Treasury bonds down this year as rates continue to move higher, one may wonder if both asset classes will finish lower in 2018. “History says the odds of both stocks and bonds posting negative returns in the same year are unlikely. In fact, over the past 90 years stocks and bonds have both finished lower just three times, with the most recent example in 1969. Our take is that bond returns could be somewhat muted this year, while solid corporate earnings, a positive global backdrop, and benefits from tax reform and fiscal legislation may help equities potentially sport double-digit gains,” said Detrick.

But while we expect stocks to top bonds this year, to be clear, we continue to believe that high-quality bonds may help mitigate portfolio risk for diversified long-term portfolios, as we recently noted in Why Own Bonds?. For more of our thoughts on equities versus bonds, be sure to read our recent Weekly Market Commentary, Out of the Woods?.

 

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond and bond mutual fund values and yields will decline as interest rates rise and bonds are subject to availability and change in price.

Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor

Member FINRA/SIPC

For Client Use —Tracking #1-702623 (Exp. 02/19)