The narrative in bond markets today is that all-in yield levels are high. The narrative in stock markets is that it is a good strategy to buy stocks when the S&P 500 is at all-time highs.
Where are these narratives coming from? They are based on the recent performance of bond markets and stock markets: Yield levels were much lower before 2022, and stock markets continue to go higher and higher no matter what happens.
In other words, the market puts more weight on recent events in investment decisions. In short, the market has a short memory because many traders have never seen anything else.
But what if this way of investing is wrong? What if the stock market is about to enter a high inflation period similar to what we saw in the 1960s and 1970s (as shown in the chart below)? Maybe it was the period from 2009 to 2022 that was unusual in fixed income? If that is the case, then yield levels today are not high. Maybe the market today is putting too little weight on the US fiscal problems?
The bottom line is that markets will continue to hold on to yesterday’s narrative until it becomes completely clear that the narrative has changed.
Note: Returns are calculated in the S&P 500 index for the following 10 years for people investing in 1960, 1970, 1980, 1990, 2000, 2010 and 2020. Annualized returns for 2020 are calculated using data from January 2020 to July 7, 2025. Sources: Bloomberg, Apollo Chief Economist
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