Michael Jamison, Portfolio Manager
November 14, 2019
U.S. stocks currently offer more value than bonds according to Savita Subramanian, Bank of America’s Chief U.S. Equity Strategist. In fact, she says that investing in stocks rather than bonds should be a “no-brainer” for investors. Why? Because a rare occurrence is currently taking place in the market and it shows that U.S. stocks offer much more value than bonds.
In August, the dividend yield for the S&P 500 index, at 1.89%, surpassed the yield of a 10-year Treasury, at 1.5%, for the first time since 2016. According to Bank of America, stocks have significantly outperformed bonds 94% of the time 12 months out after this has happened. And it’s not even close, Bank of America notes, with stocks topping bonds by 23 percentage points over that time period. Although the 10-year Treasury Yield has lingered closer to the S&P 500’s Dividend Yield since then (closing at 1.88% yesterday) it doesn’t change the historical likelihood that the first half of the year will favor equity investors.
According to the above data set compiled by Bloomberg, more than 50% of the S&P 500’s stocks have reported dividend payouts higher than the 10-year treasury yield every month since July. For investors, the relationship between S&P 500 dividend yields and 10-year treasury yields is an important one to track. If your portfolio is currently heavily weighted with Fixed Income investments, there is likely no better time than now to consider diversification with some high-quality, dividend paying stocks.