The case for owning stocks over bonds is crumbling

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The allure of owning stocks over less risky investments is at its lowest level in decades, according to one measure, despite the equity market’s race upward this year.

The benchmark S&P 500 index has gained 16% this year, pushed higher by Wall Street’s obsession with artificial intelligence that has propelled mega-cap technology stocks to dizzying heights. At the same time, hot economic data has helped push Treasury yields higher in recent months. Bonds have become coveted additions to investors’ portfolios thanks to the Federal Reserve’s historic pace of interest rate hikes it began last March to tame runaway inflation.

Shah says she recommends that investors weigh increasing their positions in high-quality bonds, considering that the economic outlook remains foggy despite Wall Street rolling back its bets on a downturn in recent months. “The current economic backdrop is fraught with uncertainty, and investors may not be appropriately pricing in the strong likelihood of recession,” she said.

 

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