It has been said there are two sides to every story. Just look at world financial markets. Stock markets and bond markets are telling very different stories.
In the United States, stock markets were blue ribbon winners last week.
The Standard & Poor’s 500 Index rebounded to a record high. The Nasdaq Composite also set a new record. Barron’s reported U.S. stock markets were supported by abundant optimism inspired by expectations for solid earnings growth and a Federal Reserve rate cut in July.
Optimism pushed stocks higher in Europe last week, too. CNBC reported investors were receptive to news suggesting the European Central Bank would ease monetary policy to support the European economy. A significant number of national stock indices in Europe, the Middle East, and Asia finished last week higher, according to Barron’s.
Bond markets have been telling a less optimistic story.
In many regions of the world, bond yields have sunk below zero, and bond buyers have been locking in losses by investing in bonds with negative yields.
In the United States, the 10-year Treasury yield remains positive, but it has dropped from 3.2 percent in November 2018 to 2.1 percent at the end of last week.
So, what are bond markets saying? Barron’s suggested some possibilities:
“… Investors need bonds for things like diversification and setting aside money at known rates to offset known liabilities. For an investor who must buy bonds, a purchase here with negative yields isn’t necessarily a bet against stocks. It could just be a wager that bond yields won’t get much better — that slow growth and meager inflation will loom for many years.”
Time will tell.
Finally: Mutual fund giant Vanguard recently released its 2019 edition of “How America Saves.” Notably, the retirement balances of 401k plan participants aged 55 to 64, a group fast approaching retirement, have median account balances that are actually lower than the median balances of those in the same age cohort twelve12 years ago in 2007. Despite many alarm bells being rung over the last 12 years about the frightening inadequacy of retirement savings, it doesn’t appear that 401k participants closest to retirement have acted to improve their retirement readiness.