Another Reason Stocks Should Beat Bonds

By on July 8, 2011

The Systematic Relative Strength blog cites research from the Leuthold Group showing long-term outperformance of bonds over stocks is rare and leads to a period of outperformance by stocks.

Since 1926 the differential of 20 year returns has turned negative (bonds beating stocks) three times (1933, 1949 and 2009).   The subsequent 5 year period strongly favored the stock market in the first two incidences and is again demonstrating this correlation.

Annual compound returns (ACR) for stocks were 34% for the 5 years following the 1933 experience.  After 1949, stocks returned 23% ACR for 5 years.  A little over 2 years since the last negative differential in 2009, the stock market has returned 27% ACR.  These returns dwarfed the bond market’s returns which were under 5% ACR in the following 5 year periods in 1933 and 1949.

Although the sample size is small, this study indicates the stock market could have further to run based on this simple statistical anomaly.

One Comment

  1. Ilene Dover

    July 8, 2011 at 11:27 am

    and those periods correspond to the resurgence and fall of Hitler’s Germany. But chartologists don’t like historical context….

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