Since the US economic recovery began in 2009, there have been three intervals when weekly and
monthly economic momentum data have surged: early 2009 - early 2011, early 2013 - late 2014,
and mid 2016 to the present. During much of the 'surge' periods, stocks have performed very well
and the Long Treasuries has been trashed. Noteworthy now is that weekly and monthly momentum
data have been running strong for an extended period and may be set to slow down over the Apr. -
Aug. 2017 period. Looking at recent markets performance, there has been a dramatic 'rotation' out
of the long bond and into stocks. SPY:$USB
With the Fed moving very slow to lift still nominal short rates and with some inflation harbingers
such as industrial commodities (including crude oil) having lost positive price momentum, the
possibility of a temporary but significant reversal in the relative strength ratio of stocks to bonds
cannot be blithely dispatched.
The long term trends for both economic growth and inflation are in pronounced down sweeps and
until the time comes when we can say with some conviction the economy has moved from being
price stability prone or even, gulp, deflation prone, back on to inflationary turf, bonds should not
be as richly ridiculed as they are currently.
Perhaps the Trump / GOP stimulus plans that remain on the docket will settle the question and
one can bid adieu to bonds for a good while. That is the current mantra in the markets. More
and more folks are now saying stocks are in a new secular bull market and not just a cyclical advance.
Keep a couple of things in mind. Through most of the economic recovery / expansion stocks
and bonds have been exceptionally sensitive to shorter run changes to economic momentum,
and also note that even though the GOP controls both ends of Pennsylvania Ave., progress
on the agenda has been halting at best.
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!