Sumitomo Global: Learning From The Past.
Sumitomo Global looks at the lessons that can be learned about the current economy by looking to the past.
With major economies around the world burdened with large amounts of debt, low interest rates and uncertain corporate profit environment, investors can be forgiven for being a little unsure of themselves. Sumitomo Global believes that investors can look at past events to find guidelines of how to invest today.
History tells us that high dividend paying stocks could be the provider of healthy returns for some time and that generally stocks will struggle compared to bonds. In the post World War 2 world, interest rates were low, with bond rates being capped below inflation rates and the Federal Reserve is involved in similar measures now, buying up bond to keep rates artificially low.
Conventional wisdom would suggest that low bond yields would shift investor money to the stock market, but Sumitomo Global researchers have shown that this does not happen until bond yields return to normal, with the post war period showing bonds providing a 1% greater return than stocks.
The Federal Reserve lifted the cap on bond rates in 1951 and that year saw a significant reverse swing with stocks outperforming bonds by 25 percent according to Sumitomo Global research report. This shows the shortcoming of investing in capped bonds, once the cap is lifted, rising bond yields erode the value of existing bonds.
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