In an op-ed published on Wednesday, economist David Rosenberg argued that the Federal Reserve’s tightening cycle might be nearing its end, which could favor 30-year US Treasury bonds over the stock market. He suggested that if the Federal Open Market Committee (FOMC) meeting in December leaves interest rates unchanged, it would signal the end of the tightening cycle and could even portend a rate cut – a potential boon for bond prices.
Rosenberg asserted that during periods of steady Fed rates, the 30-year US Treasury has historically outperformed stocks. Despite concurrent rallies in both bonds and stocks during these pauses, the 30-year Treasury yields an average total return of 9%, superior to that of stocks. This trend, Rosenberg contends, highlights the lower risk associated with long-term bonds compared to stocks.
Furthermore, Rosenberg questioned the sustainability of the recent stock market rally. He characterized it as “junky” and lacking in fundamentals, occurring alongside soft earnings guidance and without the participation of small-cap stocks.
The economist’s forecast came after a five-month pause in rate hikes since July 2023. This pause marked a potential shift in the Federal Reserve’s monetary policy, which could have significant implications for investors who are considering their options between bonds and stocks.
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