Great News for Stocks
How does locking your money up for 10 years at a 1.7% return sound to you?
It sounds like a crappy deal to me, but that’s exactly what the U.S. government is offering you to buy its 10-year Treasury bond today.
Believe me — you can do a lot better.
Who, What, When, Where & How?
It doesn’t happen often, but since August, the dividend yield on the S&P 500 has been higher than the 10-year Treasury bond.
Instead of 1.7%, the 500 stocks of the S&P 500 collectively pay out a 1.9% dividend.
Don’t let the seemingly small yield advantage fool you. That advantage is one of the most reliable stock market indicators that you’ll ever find.
Historically, whenever stocks have higher yields than bonds, you can count on the stock market to move much higher.
Since 1970 the S&P 500 has yielded more than the 10-year Treasury bond in only 40 months. During those months, the stock market has beaten the pants off the bond market AND has risen substantially one year later 94% of the time.
On average, the stock market outperformed the bond market by an average of 23%.
There’s every reason to expect that historical trend to continue.
Reason No. 1
The Federal Reserve is doing everything in its power to goose the stock market higher, including lowering interest rates and initiating a $60 billion a month Treasury-buying program.
And don’t forget that it is widely anticipated the Federal Reserve will cut interest rates again this year, which will steepen the slope of the yield curve even more.
Reason No. 2
The S&P 500 has been above its 200-day moving average for 96 straight days and has consolidated like a coiled spring above that upwardly sloping moving average.
That’s a stark contrast to the months leading up to the painful correction the market endured in the fourth quarter of last year.
And don’t forget, too…
One of Wall Street’s most watched recession indicators, an inverted yield curve, just UN-inverted last week.
Bottom line: The dividend stocks we own not only offer you much higher yields than the 10-year Treasury bond, but there is a very strong chance they will enjoy some serious capital appreciation in the next 12 months.
A 94% chance, to be exact… And you should like those odds a lot!
Here’s to growing your wealth,