Chart of the Week - Stocks vs Bonds (valuations)
This week: Inflation and Commodities, Global Monetary Policy Outlook, US Dollar directions, Global Equities into 2023, Stocks vs Bonds...
This email gives you a look at what was in the latest Weekly Insights report
Check out the full archives of the Chart Of The Week for more charts.
Chart of the Week - Bonds Cheap, Stocks Not
US Asset Valuations — Stocks vs Bonds: Both stocks and bonds have seen a decent reset in valuations, but where they stand apart is that after a shocking 2022 (one of the worst years on record) bonds are now materially cheap, whereas equities are still somewhat on the expensive side.
I chose this chart for this edition because it’s interesting to reflect on where this chart sat this time last year. Back then, both stocks and bonds were about 2 standard deviations expensive. And I think this line is uncanny, how I just nonchalantly stated:
It would be nearly unthinkable that both stocks and bonds could fall at the same time to the extent required to drive both of those valuation indicators back to their mean. But a heavy dose of inflation and or/policy tightening could be one thing to do that.
Sometimes we do get it right. But anyway, that’s history, and my job isn’t about patting myself on the back, it’s about trying to figure out what’s coming next!
Back to the chart: as things sit here and now, the odds are in firmly in favor of bonds vs stocks, just from a valuation standpoint. But when you factor in the macro backdrop where next year likely features a global recession — that’s a situation where stocks likely suffer, and bonds outperform.
So a very interesting chart in how it prepared us for this year, but also for its implications headed into next year…
Key point: Bonds are cheap, stocks are not.
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Topics covered in the latest Weekly Insights Report
Aside from the chart above, we looked at several other charts, and took a bite out of some really important macro/asset allocation issues right now:
Inflation/Commodities: recession to bring weaker commodities, lower inflation.
Monetary Policy Outlook: a look at the original pivot, and where-to next.
US Dollar: dollar downside risks shifting to downside realities.
Global Equities: weighing up the risk drivers headed into 2023.
Stocks vs Bonds: checking the charts to see who has the advantage.
China Policy: one policy change has already taken place, but…
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Thanks for your interest. Feedback and thoughts welcome.
Sincerely,
Callum Thomas
Head of Research and Founder at Topdown Charts
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