Even after today’s 70 basis point (“bp”) declines in the Dow and the S&P, the stock market has had one heck of a run this year. The Dow and the S&P are up 16.7% and 15.6%, respectively, year to date and 3.1% and 3.2%, respectively, this month. Even the bulls, who can make a case that stocks are still cheap based on the approximately 16 P/E ratio on the S&P, and because they are confident about the projections underlying that multiple, are admitting that the market has run awfully far, awfully fast and might be in for a breather. I, of course, don’t know; as I’ve said before, even if the market is rich, it can stay rich for a long time. See, inter alia, my 5/9/13 piece OF 10 YEAR TREASURIES AND STEAMROLLERS: RICH MARKETS CAN, AND DO, STAY RICH, in which I said I thought bonds looked rich but one can never be sure, when it comes to the markets in the short to intermediate run, even of something that looks obvious.
But financial commentators, like Maria Bartiromo on CNBC yesterday, and even long time, experienced investment pros continue to ask what the alternative is. Even if one thinks stock are rich, or only due for a temporary correction due to short term exhaustion, where do you put the money?
In filling my role as the Captain Obvious of the investment world (See my 4/16/13 piece S&P YIELDS VS. BOND YIELDS: I’M YOUR MAN WHEN IT COMES TO STATING THE OBVIOUS.), I might have an answer.
The ten year treasury yield, after poking its head through the 2% soil on May 22 for the first time since early March, reached a yield of 2.17% yesterday in the wake of the stock market’s rally before falling to 2.12% today, is up 36 basis points (“bps”) year to date and a nearly astounding 45 basis points this month alone. Thus, treasuries and similar high quality debt instruments might be looking attractive to people whose memories extend back more than a few years.
In the wake of the stock market debacle of 2008-2009, lots of people would have loved to be earning 2% on their investments. I’m not saying I would be buying the conventional 10 year at 2%, but such a yield probably looks attractive to a lot of people, certainly more attractive than the 1.38% low reached late last July or even the calendar year low of 1.67% reached on the closing day of last month.
So, yes, with yields having gapped up, there is a viable place to go if one wants to get out of the stock market. You might not like bonds, and I don’t like conventional bonds (Though with everyone who is anybody saying that it is so clear that bonds HAVE TO GO DOWN FROM HERE, maybe, and only maybe bonds are more attractive than yours truly thinks.) But it doesn’t matter what we think; it is enough that there are (probably plenty of) people out there who would be happy with a 2% yield on their 10 year treasury bonds. Perhaps that is one of the reasons the stock market had a tough time today but, again, no one can say with any certainty why a market did what it did, let alone predict where a market is going in anything remotely resembling the short run. As I said in the aforementioned 4/16 piece
My important point regarding stocks is that no one knows where stocks are going in any run but the long run and anyone who tells you s/he knows where stocks are going hasn’t been around long enough, or been sufficiently humbled by his or her hubris, to be entrusted with your money. But I digress, sort of.
The overriding point of today’s piece is that it’s time the learned commentators stopped parroting the line “Where else is there to go but stocks?”
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