Stocks are now outperforming bonds on a year-to-date basis for the first time in 2016
Since the presidential election, U.S. stocks have been on a tear, with the
S&P 500 Index (SPX) and its
fellow indexes notching all-time highs. As such, stocks are now outperforming U.S. Treasury bonds -- as measured by the SPX and
iShares 20+ Year Treasury Bond ETF (TLT), respectively
--
on a year-to-date basis
for the first time in 2016, setting off a signal that could indicate the current rally is just getting started.
Looking at data since 2004, when stocks outperform bonds on a year-over-year basis, the S&P averages a smaller one-month return than when the roles are reversed -- 0.4% compared to 0.73%, respectively, according to Schaeffer's Senior Quantitative Analyst Rocky White. However, going out to six months and a year, the S&P's average returns are much greater when stocks lead bonds year-over-year. In fact, the S&P has been positive a whopping 83.2% of the time one year after these signals, compared to 70.2% when bonds outperform stocks.
You'll also note that the average positive and negative returns are much smaller after stocks overtake bonds. For instance, the average six-month S&P loss is 17.87% when Treasuries outperform stocks -- more than three times the average loss of 5.24% when the roles are reversed. That lower-volatility trend is reflected in the standard deviations, which are practically twice as high across the board when bonds are outperforming.
In green below are the times when stocks were outperforming bonds year-over-year, going back to 2004. Echoing the data above, this situation bodes well for the S&P over the next six months/year, even as several
signs point to a short-term breather for the index after its rapid-fire ascent.
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