The elusive great rotation from bonds to stocks is finally happening.
About a decade ago, investors started a big shift in their asset allocations away from bonds and into stocks. That prompted calls that bond funds would experience an even greater exodus that would end the bull market.
But the long-term rally in bonds kept going for several years until, arguably, the 2016 US election. Bond yields rose to multi-year highs and their prices fell as investors bet that President-elect Donald Trump’s administration would begin a shift towards fiscal stimulus, and reduce the Federal Reserve’s need for aggressive monetary policy.
The promised fiscal stimulus was expected to be reflationary for the US economy, reducing the attractiveness of bonds.
At the same time, investors’ bets on a lower regulatory burden and corporate tax reform pushed stocks, notably those in the financials sector, to all-time highs.
And the chart that Deutsche Bank’s Torsten Sløk shared in a note on Tuesday titled “Great rotation from bonds to stocks is here” captures this shift.