Stock market most attractive in 70 years versus bonds, more gains coming: BofA - Business Insider

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The stars have aligned for more stock gains, Bank of America says. The firm sees equities the most attractively valued in decades, versus bonds.
Stocks haven't been this attractive relative to bonds in over 70 years, according to a note from Bank of America published on Thursday.

The current dividend yield of the S&P 500 is nearly triple that of the 10-year Treasury yield, which has historically been followed by stocks outperforming bonds over the next 12 months, the firm notes.

Still, despite the relative attractiveness of stocks over bonds, the highly anticipated "Great Rotation" of investors moving from bonds into stocks has yet to occur, according to fund flows.

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Stocks haven't been this attractive relative to bonds in over 70 years. And if history is any guide, that could signal further gains ahead for stocks, according to a Bank of America note published on Thursday.

The S&P 500's current dividend yield of around 2% is triple that of the 10-year US Treasury, which yielded 0.66% as of Thursday morning.

In the current cycle, the previous three times stock yields have outpaced their 10-year Treasury counterpart, equities have outperformed bonds by 31 percentage points on average over the subsequent 12 months, according to BofA.

But the firm argues the divergence in performance between the two assets over the next year could be even greater this time around.

Since 1951 — when the ratio of S&P dividend yield over the 10-year Treasury rate was this high — stocks went on to return 19 times more than their fixed-income counterpart over the subsequent 12 months, the bank said.

Read more: RBC pinpoints 11 stocks loved by hedge funds that have beaten the market during both the coronavirus collapse and its subsequent recovery

Still, despite the drastic difference in S&P 500 yield and the 10-year rate,…
Matthew Fox
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