chart du jour – how much longer can equities ignore bonds?

The chart below displays the outperformance of stocks over bonds during the last near 30 years.

What we can see is that we are now approaching a historically significant level. Over the 12m to the 1st August the total return from US equities over US bonds was 40%, a level only exceeded in 1987, 1999 and 2010. When readings of +40 have been seen on this series in the past, US equities have fallen 86% of the time over the next 6m. Note that the current 12m total return outperformance of stocks over bonds is not quite there yet and it could continue further, but still it is a high 33% – interestingly, during the subsequent 12 month when a peak above 30 is seen in this series, the median peak-to-trough correction in the S&P is 10%.

We are targetting the end of this year/Q1, particularly should bond yields continue to rise as the end date for the current bull market. For a detailed reasoning behind our expectations, click the image below for your free copy.