The U.S. economy offers more stable growth and American securities promise more secure cash flows and yield that the rest of the globe.
The U.S. economy offers more stable growth and American securities promise more secure cash flows and yield than a globe beset by woes like the coronavirus.
The way markets have been acting this year, treating high-quality American assets as a haven, makes sense. But even a sensible move can reach extremes and create distortions. In response to the vast uncertainty of Chinese economic performance, the U.S. has outperformed the rest of the world, and within the U.S. market, secular-growth and defensive stocks have propelled the gains and had their valuations expand.The year-to-date performance of S&P 500 sectors lines up just as one might expect, given these dynamics. At the top: utilities, technology, real estate and consumer discretionary. Lagging the benchmark are energy, financials and industrials.
It's become commonplace to argue that the stock and bond markets are sending conflicting messages, with the 10-year Treasury yield back under 1.6% and the S&P 500 grinding out fresh records. Yet the 10-year Treasury is flat over the past four years, during which the S&P 500 has gained some 80%. And in recent years when the 10-year yield was much above 2.5%, equities have made essentially no net progress.
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