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I think the study you propose would be interesting, but your chart/results suggest little of value.

1.) You propose that either bonds or stocks are correct. If so, how can stocks be "correct" 100% of the time and bonds 75%? Should there be only one "winner"? To correctly declare one a winner over the other, returns should be compared on a risk-adjusted relative to the other. Ignoring the risk adjustment, using the six-month duration, bond returns exceeded stock returns 5 out of 16 times. Might this suggest that stocks have not been 100% correct.

2.) As I understand it, the debate over who is right - stocks or bonds - has more to do with periods with an inverted yield curve as well as strong stock returns. Stocks are saying full steam ahead. Bonds are yelling recession. 52 week highs in bonds does not mean the yield curve was inverted. In fact, if you are in a post-recession period, bond yields can still be falling (i.e. 52-week highs for bonds) while the stock market is rebounding (also 52-week highs). In such periods, it would make a lot of sense that stocks would handily outperform bonds. They are more volatile and should have greater upswings.

3.) Bond returns are the result of changing interest rates, which are heavily influenced by the Fed. Stock market returns are the result of changing expectations about future returns. They can and often do, move without sensible correlation.

A more useful study would be a look at periods of inverted yield curves and strong stock market returns to determine who is right and who is wrong.


You mean like 1995?

I this this is a great diss to the conventional "wisdom".

It seems that DP has it right. Try a study of 3 month - 10 year treasury inversions and new highs and tell me what you come up with.

The starting point on this chart makes it worthless. Go back to the 1960's and try that experiment again and let me know how it turns out.

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