With the exception of the recent market and exchange traded fund (ETF) rally, many are wondering if equities are dead. It’s a question that has reared its head before.There’s been some lively debate about equities vs. bonds in the markets lately. Many prominent investors, investment managers and other financial professionals state that the answer to the bear/bull questions and the overall health of equities lies in the bond market. Take PIMCO’s Bill Gross, who states that for the past 40 years, returns on bonds have superseded that of stocks. Additionally, he suggests that the fate of the markets lies in what’s in store for the global economy- deleveraging, de-globalization and re-regulation will all be bad for the equity market.
- The housing markets are still tumbling and haven’t hit a bottom, credit markets are still hurting and government stimulus packages have just been unveiled, meaning they may not take effect for a while
- Many analysts and fund managers believe that the equity markets are truly dead and reversion back to the mean is dead, states John Churchill of Registered Rep
- A recent study on the supremacy of stocks suggested that the buy-and-hold strategy is costly and the short term is most certain. The study highlights that reversion to the mean isn’t a strong enough factor to overtake the volatility and uncertainty caused by other factors as time frames elongate
A study by Rob Arnott, the father of fundamental indexing and a research titan, revealed that in the last 40 years, from 1980 to 2008, an investor in 20-year Treasuries, rolling them over every year (using proceeds from maturing bonds to buy new ones), beats the S&P 500 through January 2008. Going back to 1969, bond investors still win.
The last time people asked if equities were dead was in August 1979 – and it was practically on the eve of one of the best bull markets in history. But is it different this time? As with most things in the markets, only time can give us the definitive answer. We suggest that you watch the trendlines.
Remember, no matter what type of market it is, there are always some winners and some losers. Watching for potential long-term uptrends can help you spy opportunities across a range of markets, asset classes and global regions.
Kevin Grewal contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.