Mark Hulbert: It turns out that bonds may be a riskier investment now than stocks

by | Oct 15, 2022 | Stock Market

Stocks are riskier than bonds — everyone knows that. At least until this year. So far in 2022, long-term U.S. Treasurys have significantly underperformed U.S. stocks. The Vanguard Long-Term Treasury ETF
is sitting on a more-than-30% year-to-date loss, for example, versus a 23% total-return loss for the S&P 500
Is this year’s performance the exception that proves the rule? Or might the conventional wisdom about bonds be a case of what Humphrey O’Neill — the father of contrarian analysis — liked to tell his clients: “When everyone thinks alike, everyone is likely to be wrong.”

One telling piece of evidence suggesting that bonds might be riskier than stocks comes from recent research by Nicholas Rabener, founder and CEO of FactorResearch in London. He calculated the largest cumulative inflation-adjusted drawdown since 1928 for each of several asset classes. Ten-year Treasurys had the worst, at 61%. The S&P 500, in contrast, came in at 52%. Rabener’s research would be of crucial importance at any time, but especially in light of this week’s report of worse-than-expected U.S. inflation. Treasury yields across the maturity spectrum rose in the wake of the news, translating to across-the-board bond-market losses. The S&P 500, in contrast, rose strongly.Negative real return for long periods Rabener’s statistic is not the only one that suggests bonds m …

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