Bonds Have Kept Pace With Stocks Since July Performance A Departure From Historic Pattern

Anyone who has ever seen charts comparing the performance of stocks and bonds over time expects the numbers to change but the pattern to stay about the same:

Start stocks and bonds at the same point on the left side of the chart and as each line moves to the right through time, stocks will gradually climb faster.

The widening gap between stock and bond performance demonstrates why stocks are a better long-term investment.

But not always.

Take, for instance, a “What’s Making Money?” chart, showing how $1,000 would have performed during the previous six months had it been invested in stocks, bonds or gold. It compares the S&P 500 stock index with a Lehman Bros. Treasury bond index and spot gold prices in New York.

On July 20, the chart showed the expected relationship between stocks and bonds. The imaginary $1,000 invested in stocks early in the year would have grown to $1,191, a 19.1 percent gain, while the same amount put into bonds would have climbed just 6.9 percent to $1,069.

But Nov. 23’s chart showed that over the previous six months, a $1,000 stock investment would have grown to $1,147, while bonds did almost as well, climbing to $1,137.

What happened to the usual gap between stocks and bonds?

Two things. Stocks, of course, have had a pretty rocky period in the autumn, with the S&P 500 on Nov. 21 2 percent below its Aug. 7 peak. At the same time, bonds were doing exceptionally well because interest rates were falling.

The Lehman bond index reports “total return” - interest payment made by the bonds in the index, plus the gain or loss from changes in the bonds’ prices as they are traded on the secondary market.