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Worst Yearly Start On Record: Are Stocks And Bonds Going To Diverge?


May 5, 2022
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As we wait for the next rate trek from the United States Fed, some broad view deserves thinking about.

As revealed listed below, thanks to Charlie Bilello, year to date has actually been the most unfavorable start for stocks (S&P 500) and bonds (aggregate index of investment-grade bonds) together because a minimum of 1976, and the very first time that both have actually lost more than 10% at the very same time.

Historical Drawdowns 1976-2022

Furthermore, while the -11% decrease for bonds (yellow listed below) has actually currently been the worst on record, it bears discussing that the -13% for large-cap stocks (blue line) is simply a portion of the overall index drawdown seen in the economic downturns and bearish market of 2020, 2007-9, 2000-02 and 1987-88. Beyond the broad S&P criteria, 45% of NASDAQ 100 stocks are currently off more than 50%, which just occurred as part of the larger-than-historically-average bearish market of 2000-02 and 2008-09.

The last 8 times the S&P 500 was down in a fiscal year, bonds ended up the year up as greater rates of interest slowed usage and inflation. The concern is: will this time be various?

US Personal Saving (% of disposable personal income)

Up until now, the University of Michigan’s April customer belief survey discovered the portion of families still bullish on the stock exchange at a high 56.6%, and those bullish on bonds connected for a lowest level of simply 3% (Rosenberg Research Study). At the very same time, money levels and individual cost savings as a portion of non reusable earnings (on the left because 2005, thanks to The Daily Shot) have actually fallen back to pre-pandemic lows. The liquidity crunch and capitulation selling for ‘weak hands’ has actually hardly started. And they’re not holding bonds.

Disclosure: No positions

Original Post

Editor’s Note: The summary bullets for this short article were picked by Looking for Alpha editors.

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