The S&P 500 soared 29.6% and 11.4% in 2013 and 2014 respectively, pushing the broad market benchmark to unimaginable heights. Net inflows into U.S. stock funds, including ETFs, also set records. Unfortunately, that is not always a positive sign for the asset class.
The increased participation by the world’s investors in U.S. stocks may not be inordinately alarming. What might be far more ominous? The remarkable performance of safer haven assets over “stuck-in-place” stock assets since the Federal Reserve ended its third round of quantitative easing (QE3) on October 31. Specifically, the 30-year treasury yield has plummeted from roughly 3.0% to 2.4%, sending a proxy like PIMCO 25-Plus Year Zero Coupon (ZROZ) up more than 20%. Similarly, iShares 20 Year Treasury (TLT) has pocketed nearly 14%, while SPDR Gold Trust (GLD) has rallied about 10%.
The appetite for risk has been changing before our eyes. Remember the success of riskier equities in 2013, as investors ran from treasury bonds and gold? Indeed, 2013 was only one of two negative years for total bond returns across two decades. Equally staggering, gold appeared to many as if it might collapse altgoether.