INDIANAPOLIS, June 29, 2020 /PRNewswire/ -- Months before COVID-19 became the topic of everyday conversation, MarketWatch was predicting the arrival of a 2020 "Great Rotation," anticipating the shifting of bond holdings into stocks.
Now, six months later, Bank of America agrees. "The stars have aligned for more stock gains," BOA observes, with equities being the most attractively valued in decades as compared to bonds.
Sheaff Brock Managing Director Dave Gilreath explains that, for investors, the upcoming great rotation will be all about investment yield. Notably, the current dividend yield on the S&P 500 is almost three times as much as the yield on 10-year Treasury bonds.
A bond's current yield shows what interest rate a bond or other fixed-income investment is actually delivering, explains smartasset.com. It is an important factor in determining a bond's profitability and, particularly for short-term investors, can be an incredibly useful measure of a bond's value.
Based on history, Gilreath notes, the ratio of S&P dividend yields to 10-year Treasury yields can be an incredibly useful measure as well. Matt Fox of Knowledia emphasizes that, every time the ratio was this high, equities outperformed bonds over the subsequent 12 months by 31% on average. Gilreath believes Coronavirus has served to speed up the bond-to-stock shift, with COVID-19-induced shutdowns causing the Fed to drive interest rates to near zero, highlighting the gap between bond and stock yields.
"Despite the relative attractiveness of stocks over bonds, the highly anticipated 'Great Rotation' of investors moving from bonds into stocks has yet to occur, according to fund flows," Markets Insider observes. "Despite the drastic difference in S&P 500 yield and the 10-year rate, investors have not yet rotated into stocks from bonds… That suggests the potential for further upside."
While the anticipated "Great Rotation" may have been accelerated by the arrival of COVID-19, Gilreath underscores the potential it may also hold for investors.
About Sheaff Brock:
Sheaff Brock is an SEC-registered, fee-only independent investment firm striving to enhance portfolios of growth- and income-oriented investors, managing $702.8 million in assets nationwide as of 3/31/2020. Sheaff Brock principal David Gilreath contributes investment news to CNBC.com, Investopedia.com, Seeking Alpha, and WealthManagement.com. Visit Sheaff Brock YouTube for information.
Sheaff Brock Investment Advisors, LLC ("SBIA") is an SEC-registered investment advisor founded in 2001. Clients or prospective clients are directed to SBIA's Form ADV Part 2A prior to deciding to participate in any portfolio or making any investment decision. The views and opinions in the preceding commentary are subject to change without notice and are as of the date of the report. There is no guarantee that any market forecast set forth in the commentary will be realized. This material represents an assessment of the market environment at a specific point in time, should not be relied upon as investment advice, and is not intended to predict or depict performance of any investment.
SOURCE Sheaff Brock Investment Advisors