It’s all about yield.
According to Gluskin Sheff’s David Rosenberg, yield is the number on reasons to own stocks.
In a note on Thursday, Rosenberg wrote that these are investors’ options:
“You can pick up 0% in the T-bill market or over 2% in the S&P 500 (actually over 4% for the overall shareholder yield when you tack on buybacks) — the same for the bond market where you cannot get a yield anywhere through to the 10-year maturity that will give you the yield that the stock market can deliver.”
There’s the risk of losing all the principal invested in stocks, compared to ultra-safe treasuries. But investors should focus on the fact that stocks “have more good days than bad,” Rosenberg wrote.
Treasury yields have plunged even though the US economy is healthy and the Federal Reserve may raise interest rates this year. But they haven’t turned negative, as has happened in several European countries and Japan. Ultra-low government bond yields around the world combined with geopolitical tensions has sent investors piling into Treasuries, pumping up prices and suppressing yields.
The yield on the benchmark 10-year note fell as low as 1.96% on Thursday. The long 30-year bond was at 2.58%.
And as the following chart shows, the S&P 500 dividend yield is clearly above the 10-year note.