Chart of the Week - Stocks vs Bonds
Stocks are expensive, bonds are cheap...
Following the tariff tantrum turnaround stocks are up and bonds are down — and we’re right back to stocks being expensive (+bonds cheap) again.
Charts like this week’s are probably about as unpopular as it gets at the moment.
On the equity side, emboldened bulls point out earnings resilience, AI/tech blue skies, and prospects of deregulation and tax cuts driving the bull market onwards and upwards after a late-cycle reset.
On the bond side, bearish narratives around deficits, debt, and downgrades hang overhead along with policy uncertainty and tail risks for foreign holders, and the prospect of “outgrowing debt“ meaning higher nominal growth and higher for longer interest rates.
But here’s the point to ponder this week: the way valuation charts like this resolve is almost always unthinkable at the time.
In 2000 no one thought stocks would fall or bonds rise.
in 2003 no one thought stocks would recover or bonds lose luster.
In 2022 no one thought stocks and bonds would both get dunked.
But the clues where there in the valuation indicators.
So sometimes it’s not about coming up with grand narratives and macro forecasts, sometimes it’s just as simple as putting together good objective indicators and studying where the pressures are building up.
Key point: our indicators are saying stocks are expensive and bonds are cheap.
Bonus Chart: Context — Long-Term Real Returns
This is only the 4th time in history where bond investors suffered long-term losses (in real, total return terms). Equity market returns on the other hand have been spectacularly good.
Indeed, you might say bonds are at long-cycle lows, while equities are at long-cycle highs based on the chart below. This lines up with the same logic and intuition as in the chart above, and though it may not matter in the coming days, weeks, or even months, I think it’s fair to argue that these charts will matter immensely in the coming years and decades (if anyone out there is actually thinking that far ahead…!).
Topics covered in our latest Weekly Insights Report
Aside from the chart above, we looked at several other charts, and dug into some intriguing global macro & asset allocation ideas on our radar:
Healthcare Sector: look at valuations/positioning after the crash
Stocks vs Bonds: weighing upsides vs downsides for the two
Japan: outlook for Japanese stocks
US Dollar Index: high-level US dollar outlook
EMFX: update on emerging + frontier market currencies
USD-XXX: a tour across the major US$ exchange rates
Subscribe now to get instant access to the report so you can check out the details around these themes + gain access to the full archive of reports + flow of ideas.
For more details on the service check out the following resources:
Getting Started (how to make the most of your subscription)
Reviews (what paid subscribers say about the service)
About (key features and benefits of the service)
But if you have any other questions definitely get in touch.
Thanks for your interest. Feedback and thoughts welcome.
Sincerely,
Callum Thomas
Head of Research and Founder at Topdown Charts
Follow me on Twitter
Connect on LinkedIn
NEW: Services by Topdown Charts
Topdown Charts Professional —[institutional service]
Weekly S&P 500 ChartStorm —[US Equities in focus]
Monthly Gold Market Pack —[Gold charts]
Australian Market Valuation Book —[Aussie markets]
Bonds are cheap… or Bonds are just weak !?
👊🏽