Home   Logon   Mobile Site   Research and Commentary   About Us   Call 1.800.621.1675 or Email Us       Follow Us: 

Search by Ticker, Keyword or CUSIP       
 
 
 
Blog Home
Bob Carey
Chief Market Strategist
Click for Bio

Follow Bob on Twitter Follow Bob on LinkedIn View Videos on YouTube
 

  September 30, 1981
Posted Under: Conceptual Investing

 
View from the Observation Deck  
  1. The yield on the benchmark 10-year Treasury note (T-note) closed trading on 9/30/81 at an all-time high of 15.84%, according to data from Bloomberg. 
  2. Fast-forward some 40 years and we find the yield down to 1.31% as of the close on 8/31/21. From 9/30/81 through 8/31/21, the yield on the 10-year T-note declined by 14.53 percentage points. 
  3. Today, we would like to take investors back to a simpler time when asset allocation focused on just four major asset classes: stocks, government bonds, real estate and gold. These four basic asset classes were somewhat analogous to the four basic food groups approach to a proper diet: fruits and vegetables, meat, dairy and grains. 
  4. As indicated in the chart above, stocks outperformed the other three major asset classes, as one might expect after factoring in the risk-return spectrum, and all four comfortably outpaced inflation, as measured by the Consumer Price Index (CPI). 
  5. The investment landscape has obviously changed dramatically. The 1.31% yield on the 10-year T-note on 8/31/21 stood well below the 5.4% trailing 12-month CPI rate on 7/31/21 (most recent release). 
  6. Due to what hopefully will turn out to be a strong and sustainable U.S. economic recovery (Federal Reserve has yet to eliminate or even cut back its stimulus efforts and the COVID-19 pandemic is still plaguing the globe), investors are facing down the proposition of rising bond yields moving forward, particularly in the Treasury market. Sound familiar? 
  7. Federal Reserve Chairman Jerome Powell stated at the recent the Jackson Hole symposium that the central bank could begin reducing its monthly bond purchases by the end of this year, but indicated it will not be in a rush to raise interest rates. 
  8. The potential silver lining in today's climate is that investors have a plethora of new strategies and products designed to better cope with a rising interest rate climate. Over the past 40 years, the financial services industry has evolved well beyond the original four major asset classes. 
This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance. The BofA Merrill Lynch U.S. Treasury Index tracks the performance of U.S. dollar denominated sovereign debt publicly issued by the U.S. government in its domestic market. The FTSE NAREIT All Equity REITs Index and its Sector/Subsector indices are free float adjusted market capitalization-weighted indices that include all tax qualified REITs listed on the major U.S. exchanges. Consumer prices (CPI) are a measure of prices paid by consumers for a market basket of consumer goods and services.  

Download a PDF of this post, please click here
Posted on Thursday, September 2, 2021 @ 1:43 PM • Post Link Share: 
Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
Search Posts
MARKET ANALYSIS
Market Commentary and Analysis
Market Commentary Video
Weekly Market Commentary
Weekly Market Watch
Monthly Talking Points
Quarterly Newsletter
Market Observations
Subscribe To Receive Email
 


 PREVIOUS POSTS
Many Investors Could Be Underweight U.S. Mid- & Small-Cap Stocks
US Stock Markets Ended August 27, 2021
US Economy and Credit Markets Ended August 27, 2021
A Global Snapshot Of Equity Returns Spanning The COVID-19 Pandemic
The Pace Of Growth In Bond Mutual Fund Assets
US Stock Markets Ended August 20, 2021
US Economy and Credit Markets Ended August 20, 2021
A Global Snapshot Of Government Bond Yields
Money Market Fund Assets Remain Elevated
US Stock Markets Ended August 13, 2021
Archive
Skip Navigation Links.
Search by Topic
Skip Navigation Links.

 
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
First Trust Portfolios L.P.  Member SIPC and FINRA. (Form CRS)   •  First Trust Advisors L.P. (Form CRS)
Home |  Important Legal Information |  Privacy Policy |  California Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2022 All rights reserved.