The stock-bond ratio, which compares the S&P 500 Index against a long-dated Treasury to test whether stocks are cheap or expensive compared to bonds, also serves as a measure for market sentiment, said Dean Christians, senior research analyst at SentimenTrader. Similar periods of panic-driven fear in the past were followed by excellent returns for the benchmark index, Christians' analysis found.
Since 1962, the ratio dipped this far only 13 other times, and in more than 90% of those instances, the S&P 500 rallied a year later. Technology stocks outpaced the broader index over the following year on average, as well as defensive groups like consumer staples and health care.
"The stock/bond ratio plunged to a historically low level as traders abandoned stocks in favor of bonds in a deleveraging unwind of the yen-carry trade," Christians wrote in a note to clients this week. The ratio, calculated using the SPDR S&P 500 ETF Trust and the iShares 20+ Year Treasury Bond ETF, fell to negative 3.75 on Monday, the analyst said.
The full article requires a Bloomberg Professional Service subscription to view. Please reach out to [email protected] to obtain a clean version copy.