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Bonds or stocks?To win, you just have to have both.
In the conclusion to a long post about the new, post-summit investing landscape Goldman’s Dominic Wilson makes a great point about about portfolio strategy.
…one striking feature of the broad asset picture is how rewarding it has been in general to be long a combination of both equities and bonds. US stocks are roughly flat on the year, but bond yields are much lower. The same was true last year. And since the market bottom in March 2009, equities have nearly doubled, while 10-year yields have fallen. On a day-to-day basis, the two assets remain firmly negatively correlated. But the negative trend in bond yields has been powerful and persistent, even with equities still much higher than a couple of years ago. While there is a tendency to see this as a “disconnect” between the two markets (with the general assumption from macro types that the bond market is “smarter”), we have shown before that this is in fact the “typical” outcome after housing busts, during stagnations, in sub-par recoveries and of course in periods when yields are aggressively targeted as a tool for easing. Any shift towards cyclical optimism should see yields move higher in the near term. But with sluggish growth likely to continue for some time, the message continues to be that long bond positions have remained a better hedge than you might expect for risk assets even with yields at historical lows.