Monday, September 29, 2014

Who's Right, Who's Wrong? Bonds or Stocks?

At the end of 2012, the global bond market was valued at roughly $100 trillion. The global stock market was valued at $55 trillion.

This makes the bond market about 65%, while stocks are 35%. The bond market is about twice as big as the stock market.

Why is this important? I didn't know the answer either, but my curiosity was piqued after seeing this chart, followed by this comment on this ZH article. The US indices were slowly killed overnight through the futures, but made an impressive bounceback, although diverging from the bond market. Will it last?

Hmmm.... what interesting food for thought. After a few searches on the web, I ended up at this interesting article from Zacks.
Despite the larger size of the bond market, the public and news media focus on the ups and downs of the stock market. Whereas bond investors hang onto their portfolios for the long term, equity investors trade in and out of stocks more frequently.
Never thinking about it before, this is a pretty valid point. It seems to me like bonds are a better barometer of what is actually going on, while stocks is a volatile proxy bouncing around. So who should we follow? An interesting question about correlations, eh?

Well, that's enough watching TV and thinking about finance for a while. I'm going to go and exercise!

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