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?.



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