It obviously hasn’t been a very good six months for stocks or bonds. The S&P 500 has generated a negative return of 20% year to date, and the Bloomberg Aggregate bond index has slid 11%.
That has some investors headed for the exits. For the week ended June 22, global equity funds suffered an outflow of $16.8 billion, with $17.4 billion coming out of the U.S. That means the rest of the world had inflow. The U.S. outflow was the first in seven weeks.
The data comes from EPFR, as cited by Bank of America.
Meanwhile, global bond funds suffered an outflow of $23.5 billion, and cash holdings increased by $10.8 billion.
BofA’s Bull & Bear indicator for stocks remained at the maximum bearish level of zero.
“Three-month returns following occasions where the Bull & Bear Indicator is at zero are very strong, unless there is a two-standard deviation event,” such as what BofA called a “double-dip recession” in 2002 and the financial turmoil of 2008 and 2011.
Bond Picture
Bond yields have soared this year amid Federal Reserve tightening, the slump of the past week notwithstanding.
The 10-year Treasury yield rose to a high of 3.5% during the week of June 13. While the yield has slid to 3.13% June 23, it remains far above last year’s finish of 1.51%.
That climb in yield has made bonds more attractive to investors. And Bloomberg presented statistics showing how that attractiveness has increased compared to stocks.
The earnings yield for stocks (earnings per share divided by share price) averages about 5.3%.
That puts the yield gap between stocks and Treasury bonds at the lowest level since 2018, Bloomberg reported June 23.
Looking at investment-grade bond yields, they stood just 45 basis points below the S&P 500’s yield, the slimmest gap since 2010, according to Bloomberg.
This development begs the question of whether stocks or bonds represent a better bargain for investors, given their sharp declines this year.
On June 16-17, The Street.com asked five experts that question, and their responses were mixed. Three said equities, one said bonds, and the fifth said neither one.
A Vote for History
Michael Sheldon, chief investment officer at RDM Financial Group Hightower, selected stocks as the better bargain, given their historical outperformance over bonds.
“Bonds provide income and stability, while stocks provide income and growth,” he said. “Stocks have more upside potential, but are more volatile.”
Bonds as a Hedge
Meanwhile, Jack Ablin, chief investment officer at Cresset Capital, chose bonds as the better bargain. Both stocks and bonds are basically at fair value after their declines, he said.
But, bonds are probably a better deal than stocks now, at least over the next couple quarters, Ablin said. That’s because “bond yields are high enough to serve as a hedge for stocks,” he said.
