It has been a very good year, so far.
Through the end of last week, the Standard & Poor’s 500 Index posted 24 record highs and delivered returns in the high single digits. The MSCI World ex USA Index was up more than 11 percent, and the MSCI Emerging Markets Index gained more than 17 percent.
After reading those numbers, many people would assume bond markets are down for the year. After all, stock and bond markets tend to move in different directions. Zacks explained,
“Stock and bond prices usually move in opposite directions. When the stock market is not doing well and becomes risky for investors, investors withdraw their money and put it into bonds, which they consider safer. This increased demand raises bond prices. When stocks rally and the risk seems justified, investors may move out of bonds and into stocks, driving stock prices up further.”
That hasn’t been the case recently. Bonds have been delivering attractive returns, too. The Bloomberg Barclay’s U.S. Aggregate Bond Index is up 2.9 percent year-to-date, while its Global Aggregate Bond Index is up 4.7 percent, and its Emerging Markets Aggregate Bond Index is up 5.5 percent.
So, why are stock and bond markets both showing attractive gains for the year?
There are a number of possibilities. Zacks described one of the most straightforward. “When stocks are doing well but investors remain skeptical about how long they will do well, stock and bond prices can rise together. This is because investors continue to put money in stocks but also put money into bonds just in case the stock market drops.”
There is nothing wrong with a little skepticism.