- The New Abnormal: Stocks continue going up as bond yields continue falling to record lows.
- Low bond yields are fueled by central bank bond buying and ultra-low—even negative—interest rates from central banks around the world.
- Here’s how you should play this new trend in stocks
Since the 2008 financial crisis, we’ve lived in the “new normal.” Today, welcome to the New Abnormal. Here’s what it is and how you should play it…
The “new normal” term gained popularity in the aftermath of the 2008 financial crisis, and was used to describe the central bank-driven rally in equity markets from 2009 until the present.
That rally sent the S&P 500 up nearly 200% since the March 2009 low, and on Thursday the benchmark domestic index logged its third consecutive record closing high.
While the latest impressive run in markets has a lot to do with global central banks keeping the monetary spigot wide open, the “new abnormal” is that stocks continue to go up as bond yields continue to fall to record lows.
The charts here of the S&P 500 and the 10-Year U.S. Treasury Yield show the ramped-up relative divergence since about April. That divergence took off in June, as stocks surged post-Brexit while bond yields plunged.
What does it all mean, and what’s the best strategy for the New Abnormal?