Stock/Bond Ratio Surges To 2007 Peak

April 1, 2017 8:22am NYSE:IVV

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From Knowledge Leaders Capital: As 1Q17 finishes with a gain in the books, the stock to bond performance ratio has also broken to a new cycle high, elevating to levels not seen since mid-2007.


Our measure of the stock to bond ratio measures the total return of the S&P 500 relative to that of the JPM 10 year treasury total return index. When the blue line rises, stocks are outperforming bonds, and vice versa.

While a rising stock to bond ratio isn’t all that surprising, especially in a bull market, the recent acceleration is not commonplace. Over the last two quarters stocks have outperformed bonds by 31%, which is highest level since 2011. Only in 1999 did stocks outperform bonds by a wider wide margin over a two quarter period.

So what does this simple chart tell us? Over short periods of time, the relative performance of stocks and bonds fluctuates around around a mean of about zero. When stocks outperform bonds by a large amount over a short period, that period of outperformance reverts back towards zero, either through time or performance. While we can’t possibly predict the performance of either stocks or bonds, what we can fairly confidently deduce is that further stock strength relative to bonds is unlikely over the coming months.

The iShares S&P 500 Index ETF (NYSE:IVV) closed at $237.27 on Friday, down $0.46 (-0.19%). Year-to-date, IVV has gained 5.46%.

IVV currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #2 of 107 ETFs in the Large Cap Blend ETFs category.


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This article is brought to you courtesy of Knowledge Leaders Capital.


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