Digg
For as long as we can remember, the stock-market bulls have been stabbing at the Treasury market furiously, trying to finally kill its epic, years-long rally once and for all. With the New Year the stock-market bulls seem to have given bonds a pretty good poke, but it’s too early to declare victory.
It’s entirely reasonable for stock bulls to, for the umpteen-millionth time, ask if this is finally the dawn of the Bondpocalypse that Bill Gross and countless other Treasury bears have been awaiting for oh, the past 30 years or so. Bond returns have outpaced stock returns during that stretch, during the past decade and the past year.
Now, with the stock market up for the first two — going on three now — weeks of this year, and some signs that retail investors are starting to tiptoe back into equity funds for the first time in months, it’s certainly an appropriate time to ask: Is this The Big One for bonds?
Doug Kass, who has been bullish, and right so far, on stocks this year, asks the question today and declares the answer could well be “yes:”
This [recent inflow into stock funds] could be the start of something far bigger, like an inflection point after five years of negative fund inflow datapoints.
So, if you are looking for a catalyst for higher stock prices in a slow-growth enivronment, I continue to see a rotation into U.S. stocks and out of bonds (of all types) as a major investment theme in 2012.
It is why I favor long investments in asset managers [like T. Rowe Price] and in discount brokerages [like Schwab], who will be material beneficiaries of a gradual move back into stocks (and out of bonds).
Already, the shares of the aforementioned are starting to outperform as investors seem to be anticipating a bigger reallocation trend that might have already started.
Ten-year Treasurys are taking a beating this morning after better-than-expected jobless claims. A big improvement in the job market would take more recession risk off the table and give investors one less reason to cling to Treasurys, which would push bond yields higher. The 10-year note yield was recently at 1.98%, up from 1.86% on Tuesday.
But that is still an extraordinarily low yield, and the trend continues to be moving lower. Bond yields are virtually unchanged from where they were at the end of the year, and have ground lower over the past several months, even as stocks have risen — a dichotomy that usually ends in the favor of lower stock prices, as Matt has noted frequently.
As tempting as it is to declare this the start of the long-awaited Bondpocalypse, we’re going to hold off, having watched way too many bond bears get carried out on their shields in the past several years.
The Grand Rotation out of bonds and into stocks has been expected for years now, to no avail. Even as the market has rallied since 2009, retail investors, nauseated by the insane tilt-a-whirl of the stock market, have been content to sit on the sidelines and protect their capital, even at the risk of missing out on big opportunities, and it seems unlikely much about that psychology has changed yet.
That’s not to say it’s going to work out well for them. Bonds really don’t offer you much upside at this point, barring dire outcomes in the US and global economies (which are still a risk). But it’s probably going to take a lot more convincing many retail investors that it’s all clear to pile out of bonds and back into stocks just yet.
MySpace
Digg
del.icio.us
StumbleUpon
Error message
>anonymous… as long as the ECB and the Fed print money, the mkt will rise. Once the spigot is shut off, who will buy govn bonds?
to fishguide: this mkt has continued to climb for a very long time while massive amounts of funds have been pulled out. to assume this won’t continue makes no sense ?
you are a reeeeeeeeeeeeemarkable idiot :0
my parents, along with 85 million other US baby boomers, are now eligible to begin pulling money out of retirement plans without a penalty. How are fund inflows expected to rise in 2012?
Subscriber Content Read Preview
Subscriber Content Read Preview
Subscriber Content Read Preview
Subscriber Content Read Preview
MarketBeat looks under the hood of Wall Street each day, finding market-moving news, analyzing trends and highlighting noteworthy commentary from the best blogs and research. MarketBeat is updated frequently throughout the day, helping investors stay on top of what's happening in the markets. MarketBeat lead writer Mark Gongloff spearheads the MarketBeat team, with contributions from other Journal reporters and editors. Have a comment? Write to marketbeat@wsj.com or write Mark at mark.gongloff@wsj.com.
Read Full Article »