The global stock/bond (S/B) ratio has rebounded sharply, as earlier fears of a recession have faded. The rebound reflects the rise in the equity total return to a record high as well as a modest weakening of bond returns, albeit after strong prior gains.
Looking ahead, the key question is whether the strength in U.S. large-cap stocks, which have powered to new all-time highs, will spread to encompass small-caps and the major global equity indexes. To this end, the outlook is cloudy, as the global economic slowdown has not reversed and sluggish growth may well continue in 2020, especially since next year’s crucial U.S. elections are bound to create greater uncertainty. Equities will have difficulty sustaining significant upside without a brighter corporate earnings picture.