American equities have enjoyed a hefty return premium for much of this year relative to the rest of the major asset classes, but in the current environment that outlier performance looks increasingly vulnerable.
Although that’s roughly half the year-to-date gain vs. the scorecard for VTI at the end of July, in relative terms it still represents a hefty edge over the competition.), up a relatively moderate 2.8%. Note, too, that the majority of the major asset classes are now in the red for 2023.Higher yields present investors with increasingly competitive alternatives to stocks, which previously benefited from near-zero yields.
The competition for stocks, in other words, is no longer weak, as it was when yields were lower and in some cases, virtually zero before the Federal Reserve began raising its target rate in March 2023. Exactly how the recalibration in market expectations unfolds is uncertain, but for now, the path of least resistance seems to be one of equalizing performance differences until more confidence about the future emerges.
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