“Ultimately, it’s all Trump, because you can blame trade and tariffs on Trump,” said Susan Schmidt, head of U.S. equities at Aviva Investors. “It’s noise that’s cascading out of actions from the administration. We have stalled out because we need another tailwind and nothing is there. If anything, the headwinds are keeping the market from moving up.”
But while equity markets have stood still, bond yields have plunged. U.S. 10-year Treasury yields stand more than 100 basis points lower than where they were when the S&P 500 hit a record in January 2018. That’s pushed equity investors into so-called bond proxies, with utilities and real estate stocks each up more than 20% in the same 21-month period that the S&P 500 has gone nowhere.
To Andrew Lapthorne, global head of quantitative strategy at Societe Generale, the move is ill-advised, as investors are lulled into a false sense of safety.
“Many argue that low bond yields justify higher stock valuations, but in a bear market ALL stocks tend to lose money,” Lapthorne wrote in a note to clients this week. “Investors are playing a game of chicken: hoping lower bond yields do not lead to a recession, but equally that the global economy remains sufficiently moribund to not cause bond yields to rise.”
Kim Forrest, the chief investment officer at Bokeh Capital Management in Pittsburgh, agrees, and says it’s encouraging that stocks have been stagnant. Amid trade concerns, impeachment proceedings and slowing growth, it’s quite a feat that the S&P 500 is still up 15% year-to-date, she says. It could be worse, but that doesn’t mean investors should run for cover.
“What the hell is wrong with investors that they actually say, ‘I’m going into cash or I’m buying all utilities?’ You think that’s going to save you? It’s like the ocean going up and down and you’re trying to somehow make that not happen. It’s crazy,” Forrest said by phone. “If you’re an investor, the funds that are in the market should be around for some time period out in the future, not for immediate use today. This isn’t a bank account.”
This article was provided by Bloomberg News.