Now is better than ever to revisit bonds: Strategist
Treasury yields (^FVX, ^TNX, ^TYX) are trading higher while US equities (^DJI,^GSPC, ^IXIC) move lower on Monday. John Hancock Investment Management co-chief investment strategist Emily Roland sits down with Josh Lipton and Jared Blikre on Market Domination to discuss the latest bond market action and how investors may become "their own worst enemy" by holding cash rather than investing in bonds during an interest rate-easing cycle. Roland tells Yahoo Finance that Goldman Sachs' forecast regarding slowing S&P 500 returns "makes quite a bit of sense," explaining, "We recently looked at the starting valuations on the S&P 500 and what the subsequent ten-year annualized returns look like right now on a trailing basis. We're sitting at about 27-times earnings. That's the most expensive the S&P 500 has been. Or the third most expensive we've been, with the exception of the late 1990s and 2021... "When you look forward at periods where stocks are this expensive, the forward-looking ten-year returns are quite muted. In fact, they're often negative. I'm not necessarily calling for negative returns over the past ten years, but we just had a really great time for markets. So I think expecting some more muted returns makes sense..." On the other hand, the strategist also states bonds aren't quite "priced for perfection." "We've had a rough few years owning bonds. And again, this higher income is setting up, I think, for a really, honestly quite competitive return potential out of bonds, which is something that we haven't seen in quite some time given the fact that the ten-year Treasury yield is now higher than the earnings yield on the S&P 500 and the dividend yield on the S&P 500, we think bonds deserve a look in portfolios," Roland tells Yahoo Finance. Historically, during Federal Reserve rate easing cycles, "investors tend to become their own worst enemy," Roland says. "They allocate to money market funds all the way through the cutting cycle and then don't turn to high-quality bonds or core bonds in a meaningful way until rates are already at rock bottom. So what we're suggesting is that investors consider leaning into bonds now rather than waiting for this cutting cycle to play out." To watch more expert insights and analysis on the latest market action, check out more Market Domination here. This post was written by Naomi Buchanan.
