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Jeff Gundlach on Bonds vs Stocks

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I saw your comments on Twitter referencing Jeff Gundlach. I was wondering why you feel so confident saying he is wrong when he claims that bond prices lead stock prices?

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Posted by (Questions: 10, Responses: 9)
Posted on 11/10/2017 7:56 PM
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Well, we know, empirically, that bond prices don’t lead stock prices. For instance, look at the last 30 years of bond returns. The bond market has been falling in yield this whole time. This would make one think that much lower stock returns were on the horizon. But interest rates peaked 37 years ago and have been falling ever since. Did that forecast lower annual stock market returns? No. During the next 37 years the stock market has averaged a 13% return vs a 13.34% return in the previous 37 years. So we know, for a fact, that falling interest rates don’t mean higher or lower stock market returns.

So when I see people posting charts saying that the bond market leads the stock market I just don’t see any empirical evidence supporting this idea. I know it sounds smart and all, but it’s not supported. I mean, I manage a lot more bonds than a stocks so I’d love to pawn off this myth that us bond managers are smarter than all the stock managers out there. But I know it’s not necessarily true and I think it’s naive to believe that these markets are so disconnected that one is necessarily leading or smarter than the other…..

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Cullen Roche Posted by (Questions: 10, Responses: 1771)
Answered on 11/11/2017 1:18 PM