Since strength in the stock market is generally regarded as a sign of a strong economy, while rallies in the bond market usually imply a weakening economy, investors are waiting for a resolution, or at least wondering who has it right - the bond guys or the stock guys. Conventional wisdom says that when it comes to the economy, the bond market usually has it right. We put this argument to the test and provided the results below.
While both asset classes have continued to gain in the weeks and months following prior occurrences, we found that following 100% of the prior occurrences where stocks and bonds hit 52-week highs, stocks have been higher six months later for an average gain of 8%. Bonds have averaged a gain of 4.1% and risen 75% of the time. 75% is pretty good, but stocks have been right 100%, which makes you wonder why so many people say the bond market usually has it right.
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