What Lies Ahead For Stocks? See What Today's Bond Prices Suggest
- Over the last decades, there has been a very high relationship between the yearly performance of the S&P 500 index and long-term treasury bond performance.
- During the last 15 years (1999-2013) that relationship has been highly negative with bond prices serving to essentially enable one to predict stock prices with much accuracy.
- However, during the earlier 12 years (1987-1998), while there was still a very strong relationship, the direction was positive, meaning that stock and bond prices moved in sync.
- Starting this year, however, the relationship reverted back to that found earlier - stock and long-term bond prices were again moving in the same direction.
- The reasons for the strong correlations, but in opposite directions, are discussed and the implications for both future stock and bond prices were spelled out.