Don’t bet on bonds beating stocks
The US Fed has said it will keep interest rates at their current lows until the unemployment rate hits 6.5%. At present the US is generating some 200,000 jobs based on an average of the last three months of job growth, as calculated by the Bureau of Labour Statistics. At this rate of growth the 6.5% target will be reached by 15 January, 2015.
The chart shows there is a correlation between equity versus bond performance and the level of employment. The blue line shows stocks minus bonds, so when the line is going up stocks are doing better. It shows as equities have historically beaten bonds when the unemployment rate falls. According to JP Morgan Asset Management global market strategist Andrew Goldberg, the Fed is specifically keeping rates low and buying bonds “all day long” until the unemployment rate falls from 8% to 6.5% which could take two or three years.
Goldberg said it is not just the Fed operating this way, as the methods of central banks across the globe are still not getting the economy to grow: they have lowered interest rates but people are still not borrowing. They are trying to convince people who have savings accounts to put their money elsewhere, ie stocks, in order to feel wealthier through the income received on them.
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