August 1, 2016
Recently, we’ve seen all-time highs in the stock market AND record-setting lows in the bond market.
That’s happened only once in the last 40 years, so it’s not exactly a normal occurrence. It was in 2013, mid-recovery and served with a healthy dose of Quantitative Easing.
These are unusual times.
U.S. Treasury yields fell to record lows last month. And, sure uncertainty is high with Brexit, monetary policy pivots, China and much else going on in the world. But American bonds have been the safe haven.
Now though, we’re seeing low yields across the globe. The 10-year Euro note was recently as low as 0.78 percent. Worse yet, the 10-year German government bond was at -0.18 percent!
These are some of the most developed economies in the world, and they’re all paying nearly nothing!
Meanwhile, the S&P 500 is setting records left and right.
Usually, falling interest rates indicate a slowing economy. And one would think record low bond yields would reflect a tanking economy. Conversely, we often see strong equity markets when economies are vibrant and growing.
It’s Bizarro World out there folks.
Unsurprisingly, there’s a new acronym to describe why this is happening – TINA. As in, There Is No Alternative. Slow growth and negative interest rates are fed by investor money because for many, they’re the only game in town.
How long will TINA stick around? It depends on who you ask.