No "new normal" as stocks to bonds gain like the roaring ’90s

Markets Reversion

“Policy distortions cannot continue indefinitely,” Saumil Parikh, Pimco’s co-head of asset-allocation strategy, wrote Jan. 4 in an e-mail. “2013 will be a year of reversion to the medium-term ‘new normal’ view for both the economy and financial markets.”

While equity markets bucked the new normal trend last year, the longer-term average proves Pimco is right. Stocks globally returned an average of 4.6 percent in the past three years, when including a 9.42 percent drop in 2011, the MSCI All-Country World gauge shows.

U.S. government debt of all maturities returned 2.16 percent in 2012, the least since they lost 3.7 percent in 2009, according to indexes from Bank of America. It may offer investors little again this year. Ten-year Treasury yields will rise to 2.14 percent by the end of 2013, from 1.76 percent on Dec. 31, 2012, in the first increase since 2009, based on the weighted average estimate of 77 economists surveyed by Bloomberg News.

Stocks, Bonds

The Standard & Poor’s 500 Index will gain 6.4 percent after rising 13.4 percent in 2012, according to the median forecast of 16 Wall Street strategists in a separate Bloomberg survey.

Bonds around the globe returned 5.7 percent in 2012, more than the 5.4 percent average in the 16 years since the inception of Bank of America Merrill Lynch’s Global Broad Market Index.

U.S. speculative-grade, or junk, debt earned 15.6 percent, compared with the yearly average of 11 percent in the 1990s. High-yield securities are those rated less than Baa3 by Moody’s Investors Service and below BBB- by Standard & Poor’s.

Debt backed by subprime home loans issued before the housing market collapsed in 2007 gained 41 percent on average, Barclays Plc index data show.

The best government bonds to own last year were issued by Europe’s most troubled nations. Greek debt topped the 26 sovereign markets tracked by Bloomberg and the European Federation of Financial Analysts Societies, rising 97.3 percent. Portugal’s returned 57 percent, while Italy’s gained 21 percent.

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