Stocks May Be Booming but Don’t Forget Cash and Bonds

It’s a different landscape now.

Yields are already high, making bonds more reliable than they were last year. Even if they go higher, there is now a good cushion, and potential price declines should be offset, or even offset to some extent, by the income generated by bonds. Bond mutual funds and exchange-traded funds are also unlikely to fall to last year’s levels. “By the bond math, that’s not going to happen.” Cathy JonesSchwab Center for Financial Research’s chief fixed income strategist said in an interview.

with federal funds rate Above 5%, the rich yields spilled into money market funds and Treasury bills with up to one year remaining. Now that the debt ceiling battle is over and the Treasury Department is issuing huge amounts of new bonds, those investments are safe again. No such claim can be made for tech stocks.

There are various ways to compare equity and bond market valuations.

It’s a little unstable.

Basically, the higher the bond yield and the lower the stock return, the better the bond stacks and vice versa. One long-standing metric is to compare the S&P 500’s 12-month earnings yield to Treasury yields. Bonds are doing well in this race so far.

The S&P earnings yield is 4.34 percent, That yield is lower than the 5%-plus yields of ultra-safe 1-year government bonds, and in some ways it’s unattractive, according to FactSet. investment grade corporate bonds is also attractive. Yields on 10-year Treasuries are well below 4%, making them less attractive.

This means that the TINA acronym no longer applies. So there are viable alternatives to the stock market at this point.

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