Stock Returns and TIPs Yields

I recently looked at the relationship between stock market returns and TIPs yields. I found that 1.10% on the five-year TIP is a good tipping point for the stock market.

When the five-year TIP has been yielding 1.1% or more, the stock market (as measured by the Wilshire 5000 Total Return) has lost 2.1% annualized.

But when the five-year TIP has been 1.09% or less, then the market has gained 17.1% annualized.

The data goes back to January 2003 so we almost have 15 years of data. I wish we had more. I suspect that over time, we’ll see a tipping point yield around 1% to 1.5%.

On Friday, the five-year TIP closed at 0.19%. So going by that, we’re still a long way from bonds being competitive against stocks.

Here’s the five-year TIPs yield along with its tipping yield in red. The blue line hasn’t been above the red line in over eight years.

Posted by on October 10th, 2017 at 9:40 am

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