U.S. bonds fall out of sync with record-setting S&P 500

Signals from the U.S. bond market indicate the S&P 500 Index is due for “a reset,” according to Steven Vannelli, chief investment officer of Knowledge Leaders Capital LLC. Vannelli, also the firm’s founder and chief executive, raised the issue in a blog post Thursday. 

He cited gaps in yield between investment-grade and high-yield debt and U.S. Treasuries, as compiled by Bloomberg. Both spreads widened because of falling bond prices since early July, while the S&P 500 set records repeatedly. There have been 49 new highs this year.

S&P 500 revisits '80s by tumbling relative to Treasuries

U.S. stocks have gone through their biggest bout of weakness relative to Treasury securities in decades, according to a barometer cited by Talley Leger, a senior investment strategist at Invesco US. The indicator is the ratio between the S&P 500 Index and the reciprocal of the 10-year Treasury’s yield, which he presented in an April report on market gauges. The ratio started this month by closing at its lowest level since 1983 after tumbling 85% from a high in October 2018. A rebound is needed for stocks to recover, Leger wrote.

 

S&P 500 yield gap to Treasuries signals `ultimate bottom'

U.S. stocks “may be near their ultimate bottom” and already account for a recession, LPL Financial Corp. wrote in a blog post Thursday. The firm cited the equity risk premium, or the difference between the earnings yield on the S&P 500 and the yield on 10-year Treasury notes. Monday’s premium amounted to 5.65 percentage points, the widest since July 2012. The premium was derived from an earnings yield, the inverse of the S&P 500’s price-earnings ratio, of 6.37% and a 10-year yield of 0.72%

Yield advantage shifts to S&P 500 from 30-year Treasuries

Income-seeking investors may now be better off with U.S. stocks than with Treasury securities of any maturity. The dividend yield on the S&P 500 Index exceeded the 30-year bond yield Thursday by 24 basis points, the most since March 2009, according to data compiled by Bloomberg. The gap swung in favor of stocks on Monday as the 30-year yield dropped to a record low, and widened the next three days as the Treasury yield fell further. Each basis point amounts to 0.01 percentage point.