Best Post-QE2 Opportunities Lie Beyond Stocks

Apr. 12, 2011 12:38 PM ETSPY, CWB, HYG, PFF, LQD, TIP, SHY, IEI, IEF, TLH, TLT, GLD, SLV, FXY, UUP, FXF, VXX, VXZ7 Comments
Eric Parnell, CFA profile picture
Eric Parnell, CFA

In my article "QE-Proof Stocks for Summer 2011," I discussed the volatility that struck the stock market following the end of QE1 and began highlighting the few stocks that held up well during the QE pause last summer. As we approach the end of QE2 on June 30, it is worthwhile to look beyond stocks, as some of the best post QE2 opportunities reside in various other asset classes.

My introduction to this series will begin with a summary assessment. Basically, this is a first look at what asset classes performed well during the period from April 26, 2010 when the stock market plunged into a sharp correction following the end of QE1 to August 27, 2010 when stocks finally bottomed following Ben Bernanke’s Jackson Hole speech confirming that QE2 was soon on its way. I will return with a detailed breakdown on each category in the coming weeks to assess which asset classes are poised to repeat this outperformance post QE2 and which might not hold up as well the second time around.

Convertible Bonds, High Yield Bonds and Preferred Stocks

Beginning at the top of the stock correlation spectrum, convertible bonds, high yield bonds and preferred stocks all performed well post QE1 relative to stocks. All three categories moved lower with stocks through the first few weeks, but stabilized by late May. Convertible bonds, which is the most highly correlated asset class to stocks, moved sideways for the remainder of the summer, but the peak to trough loss was limited to just over -10%. As for high yield bonds and preferred stocks, both categories subsequently moved higher through the remainder of summer 2010 to end flat in the case of high yield bonds and higher in the case of preferreds.

(Click to enlarge)

Investment Grade Corporate Bonds


This article was written by

Eric Parnell, CFA profile picture
Chief Market Strategist, Great Valley Advisor Group and Assistant Professor of Business and Economics, Ursinus College

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