by David Rosenberg
Equities are being sought for income, and bonds for capital gains: a fascinating reversal
Stellar performance across most asset classes has been the norm until recently. Equity markets are up sizeably and, in some cases, like the S&P 500 and even the German Dax, have hit fresh all-time highs. Corporate bond markets are still offering decent returns as well, especially when measured against government bonds and cash.
Yet, in the past month, more than 60 per cent of the incoming US economic data have come in below expectations versus 34 per cent above expectations. Two months ago, only 42 per cent of data were disappointing and 53 per cent surprising to the upside.
The consensus was looking for 4 per cent US GDP growth for the first quarter; we got 2.4 per cent instead. Estimates for this quarter are approaching a meagre 1.5 per cent annual rate. So it is safe to say that this latest leg in the risk rally does not have a lot to do with what is happening in the real economy.
