| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| More |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Bonds vs. Stocks |
Barrons.com, June 28, 2009 By MICHAEL SANTOLI
The market should retreat -- which may be why it won't.
IN TALKING TO MARKET PEOPLE OVER THE YEARS, it's clear that the sharper traders and more astute analysts share a couple of traits. The first is to inquire, "What are you hearing?" before they offer their view, and the second is to ask, "Where could I be wrong?" after they do.
In the spirit of challenging the assumptions of the comfortable consensus, here's an interrogation of a widely shared investment notion or two.
First, the avid embrace of high-grade corporate bonds, based on the conclusion that they occupy a "sweet spot" at the border of income and stability. This was screamingly true in late 2008 and early this year, when Barron's, among others, pointed to the undue cheapness of solid credits. Since then, there has been an all-out grab for investment-grade debt, especially from the strongest issuers. By some lights, the 100-day equity rally has been mostly a matter of credit markets towing stocks higher. And, predictably, issuers are feeding the quacking ducks, to the point where it makes sense to ask whether the corporate bond-versus-stock valuation relationship is overstretched.
As Andrew Bary noted Wednesday in a timely Barrons.com piece, debt buyers flocked to Merck 's (ticker: MRK) $4.25 billion bond issuance, happy to pick up a 10-year tranche at a yield just over 5%. Meanwhile, Merck's common shares are shunned, despite a 6% dividend yield and depressed valuation.
A clever friend asks: How many companies through history with a stock trading below eight times current-year profits -- a level usually associated with risky, cyclically sensitive businesses -- have been able to issue 10-year paper around 5%? Consider, too, AT&T (T), whose 6.7% stock dividend yield is comparable to the rate on some of its longer-term debt. And Microsoft (MSFT), which in May sold debt for the first time, paying 3% to 5.24% for money it doesn't need. So, this means Microsoft sold bonds valued between 33 and 19 times the bonds' promised "earnings," while its shares sell for 13 times.
This indicates neither that these stocks are massively undervalued nor that the bonds are a bust, but suggests that if the credit markets are correct -- or are so overrun with liquidity to make these yields sustainable -- then conditions should remain supportive of stocks generally, making corrections not so deep and spilling some of that liquidity toward equities at times.
This is significant, given that liquidity is at the forefront right now. Not only because of the roundly cited trillions of dollars in sidelined cash, low margin-debt levels and still-high short interest and massive monetary stimulus, but because -- at a time when stock valuations and economic data can easily be argued as either bullish or bearish -- the migration of cheap money and modulations of risk appetites are the primary market movers.
The debate about whether the inventory-building production pickup will usher in something more self-sustaining won't be resolved for months. A volatile argument of the tape among committed bears, scared bulls and underinvested opportunists could fill the time until then. This, and some clues in the pricing of volatility derivatives, hints at some additional choppiness, and maybe some increased sector rotation, yet doesn't strongly augur either an upward or downward tilt to indexes.
Barry Knapp, a market strategist at Barclays Capital, believes that the strong bond market and residual defensive stance of large pension funds could mean a month-end rotation toward equities, even with the S&P 500 up 35% since the March low. "I'm not sure we don't end up with a 'time correction,' " he says, in which sideways action rather than sharply lower prices digest the gains. "The market could be susceptible to good news more than bad" for a while, he adds.
This addresses another consensus contention: that the market is firmly range-bound for a while, in wait-and-watch mode (move along, nothing to see here), and vulnerable to a long-awaited downside gut check. Such a stance is logical, plausible and supported by a multitude of factors, including the blah trading volumes and the indexes' repeated thwarted attempts to best their weeks-old highs. If things play out this way, no one ought to be, or likely would be, surprised.
Yet as the market has worked laterally through May and June, investor enthusiasm has waned, and bearishness in surveys has increased, which is a plus from a contrary angle. And, as noted, it's advisable always to try and view things from such a slant.
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| Stuff to look at |
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| BondsOnline Advisor |
Income Security Recommendation January 2013 Issue.
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