Stocks and Bonds Rising Together – Its Not So Strange

• Posted by Greg Harmon
• on August 29th, 2014

Plenty of smart people are making the rounds talking about how rising bond prices and rising stock prices cannot go on forever. To me the argument is like saying that cats and dogs cannot sleep together. One point made is “How can there be demand for both the risky asset, stocks, and the risk free asset, bonds at the same time?” Another point espoused is that with “bonds are rising in a flight to quality, so stocks will inevitably need to fall.” I do not know when these arguments became accepted and truthy. But I beg to differ. There is no reason that stocks and bonds cannot rise together. And history is on my side.

The chart above shows that from 2003 through 2007 stocks and bonds rose together. 4 years. That is a long time. Something like 6 Kardashian marriages. And how long have they been moving together recently? Only about 1 year. Hardly a stretched situation. So forget about the incorrect but accepted historical view and focus on the actual history. Not only can cats and dogs sleep together but stocks and bonds can move higher together.

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