The stock and bond markets are poised to close out their best tandem year in two decades
- While the last holiday season saw stocks tumble, 2019 is on track to deliver the best simultaneous year for stocks and bonds since 1998, The Wall Street Journal first reported.
- The S&P 500 index is up about 29% year-to-date while the 10-year Treasury bond's yield fell more than 0.75 percentage points earlier in the year before paring some losses.
- Both assets have been driven higher by the Federal Reserve's rate cuts, increased Brexit certainty, and the "phase one" trade deal between the US and China.
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The last holiday season saw stocks tank through the final weeks of 2018. This year, stocks and bonds are on track to post their best simultaneous performances since the late 1990s.
The S&P 500 index is up about 29% year-to-date, while the 10-year Treasury bond's yield fell more than 0.75 percentage points in the 12-month period. The performances would be the first time the benchmark index jumped at least 20% and Treasury yields tumbled by so much since 1998, The Wall Street Journal first reported.
The popular assets have both been boosted by the Federal Reserve's trio of rate cuts through the latter half of the year. The stimulus helped propel several consecutive record highs for the S&P 500, Nasdaq Composite, and the Dow Jones Industrial Average.
Bond yields fall as the underlying asset grows more expensive, leading the year's activity to signal increased buying of US Treasury bonds. The 10-year yield neared a record low at the start of fall before recovering to roughly 2%.
A collection of geopolitical events helped secure year-end gains in the two markets. The UK's general election established a strong Conservative majority and a clearer picture for the future of Brexit. The "phase one" trade deal between the US and China also calmed global economic fears, marking the first major deescalation for a large source of market risk.
The two events, when paired with continued liquidity injections from the Federal Reserve and European Central Bank, were cited as critical drivers for Bank of America's first-quarter market projection. The bank expects a "risk asset melt-up" to increase the S&P 500 more than 5% by March 2020, adding that returns in the new year will be "front-loaded."
The outperforming assets aren't the only investments ending 2019 on a high note. Gold, a traditional hedge bet for investors expecting markets to tank, is up more than 15% year-to-date. The precious metal surged through the summer after a yield curve inversion and trade war escalations boosted investor panic.
The end-of-year returns mark a sharp contrast from 2018's holiday season. A rally in US stocks came to an abrupt halt as the S&P 500 recorded its worst December since 1931, according to The Journal. The index closed the year down 6%.
Bond prices also sank enough in fall 2018 to push yields above 3% for the first time in five years.
With a year of widespread returns coming to an end, traders are now positioning for greater volatility in 2020. The Cboe Volatility Index, which tracks market swings, is down 50% year-to-date. Should the trend continue through the end of 2019, the VIX will notch its biggest yearly fall in history, The Journal reported.
The record low, when coupled with the 2020 presidential election and further developments in the US-China trade war, will likely prompt more cautious positioning from investors in the new year.
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