Chart: Stocks vs Bonds Long-Term Cycles
Stocks beating Bonds should be no surprise for those paying attention.
Stocks are in a raging bull market.
Bonds are in brutal a bear market.
But you might be surprised by the extent of it (see chart below).
The rolling 10-year annualized total return spread (i.e. including interest for bonds, dividends for stocks) of stocks vs bonds just cracked 15% —the highest since 1960 (and eclipsing the 1929 high).
$S&P 500(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$
Looking at the two series separately (below) we can see bonds making long-cycle lows, and stocks making long-cycle highs in real (CPI-adjusted) total returns.
I think it’s important to emphasize the word cycle, because there does appear to be some rhythm and recurrence in the peaks vs troughs for both series.
But words matter, and there is a key implication of using that word…
If you believe that returns for stocks and bonds go in cycles (as the chart above appears to show), then the time to be wary of downside on stocks is when they are at their best (e.g. now), and the time to be watching for upside in bonds is when they are at their worst (also now).
This is a deeply contrarian assessment.
And as with most contrarian viewpoints, a few things would need to go right for bonds to break the bear —and likewise a few things would need to go wrong for stocks to lose their shine.
But the purpose of zooming out to the bigger long-term historical picture like this is perspective building. It helps provide a data-driven check against the consensus of the day, and assists in imagining what might be sitting over the horizon…
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