Stocks crush ‘Year of Bond’ in biggest sentiment shift since ‘99

All the chatter back in December was that 2023 was to be the “year of the bond.” And for a brief moment or two in the winter, that call — and the economic doom-and-gloom that underpinned it — looked right.
It is now being overrun, though, by an avalanche of demand for equities that has unleashed a furious rally across the globe and, in a sign the gains are likely far from over, made investors more optimistic about stocks relative to bonds than at any point since SentimenTrader models began comparing them 24 years ago.

“As sentiment, technicals and risk of the recession got pushed further out we moved from being underweight stocks to overweight,” said Nathan Thooft, global head of asset allocation at Manulife Asset Management in Boston, who’s reduced his credit exposure in favor of an equity overweight.

2023 had all the makings of a breakout year for fixed income. The end of aggressive Federal Reserve rate hikes and a pivot to easier policy should have set up a rally in bonds and made them an insurance policy against a growth downturn.

Instead, the economy seems to have pulled off a rare feat: inflation has slowed while new jobs are being created. Growth keeps accelerating and even staff at the US central bank are no longer forecasting a recession. The Fed is still raising rates — though it may have just completed its last increase this week — and bonds aren’t living up their billing as a safety valve.


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Still, Brazier admitted this year so far isn’t turning out like he and his BlackRock colleagues anticipated.

“What’s happened, particularly in the US stock market, has taken a lot of people by surprise,” he said.

SentimenTrader suggests the shift may endure. Unlike in the past, corporate insiders are big buyers, while technicals like subdued volatility and bullish options are keeping equity sentiment elevated.

The only other two instances when stocks versus bond sentiment were so wide apart were in 2003 and 2009 “both coming out of protracted bear markets and indicating a dramatic shift in investor expectations,” said Jason Goepfert, director of research at Sundial Capital Research and SentimenTrader, which analyzes futures positioning, surveys, options activity and fund flows. “Both preceded new bull markets.”