Perhaps speakers should cease describing stocks as being the only game in town. As feeble as the income portion of the total return may be, bonds still provide safer haven qualities. Geopolitical fighting, stock price overvaluation, limited supply of government debt due to quantitative easing, ongoing deflation shocks in Europe – one can most certainly make the case that bonds will remain the big winner in 2014. Then again, with fixed income being so darn dry, will anyone other than Gundlach and Gross (and yes, Gordon too) even talk about it?
One final observation regarding the stock market’s penchant for rallying on bad economic news. Granted, the U.S. Federal Reserve succeeded in bolstering confidence in equities through its ultra-loose monetary policies. On the other hand, the notion that the Fed will forever ride to the rescue is hardly preordained. If the consumer looks weak in real estate-related data or retail data – if employment information disappoints and/or GDP is unimpressive and/or wage growth wanes – investors seem convinced that the Fed will maintain its zero percent target well into the latter half of 2015. On the flip side, how high can stocks really climb if that same data stifle corporate revenue and profits?
One of the more telling indications that U.S. stocks may have trouble making significant headway involves Wal-Mart’s anguish. Some might even choose to dub it the, “Wal-Mart Indicator.” Same store sales at the consumer staples giant have declined for five consecutive quarters. Meanwhile the corporation’s shares figure prominently in SPDR Select Consumer Staples (XLP) as well as Market Vectors Retail (RTH). In fact, the price of RTH has yet to reclaim its November 2013 highs.
Will stock asset demand overcome both Wall Street’s “Wall of Worry” as well as Wal-Mart’s “Wall of Woe?” Even if it does, might you be able to get over a stock bias to allow for a little bit of bond asset love?