It’s a new week, a new month, a new quarter, and a new half, but the market is picking up right where it left off last week as stocks look to kick off the new quarter on a positive note. Along with higher stock prices, treasury yields are also spiking and the 10-year yield is back above 4.4%, but these moves could change significantly with the release of the Manufacturing PMIs at 9:45 and 10: AM. Besides today’s release, the economic calendar will be jam-packed this week (even though it’s just three-and-a-half trading days) with ADP Employment (Wednesday), ISM Services (Wednesday), and Non-Farm Payrolls (Friday) among others.

Stocks finished up the first half with a gain of 15.3% on a total return basis, and the rally since this time last year has been a very respectable 24.6%. That’s nearly twice the historical average and ranks in the 75th percentile relative to all one-year periods since 1928. Over the last two years, which includes almost four months of the prior bear market, the S&P 500 has returned 22% annualized. Five and ten-year returns of 15.0% and 12.9%, respectively, also rank above the historical average, but over the last 20 years, the annualized gain of 10.3% ranks slightly below the 10.9% historical average for all 20-year periods in the S&P 500’s history. No matter how you look at the last ten years, it’s been a great time for equities, but the ten years before that weren’t so good.

That’s the good news. While stocks have performed admirably, bonds have been swirling down the toilet. Over the last year, long-term US Treasuries, as measured by the BofA 10+ Yeat US Treasury Index, have declined 5.1% on a total return basis. Annualized returns over the last two years have been even worse at a decline of 6.1%, and in the previous five years, the annualized decline has still been negative at 4%. Even over the last ten years, returns have been barely positive at just 0.7% annualized. You have to go out twenty years to get meaningfully positive returns, but even here, the gain has been somewhat muted at just 3.9%.

A great way to illustrate the weakness in bonds over the last three-plus years is the chart below.  On a year/year (y/y) basis, there has only been one month in the previous forty-one where returns have been positive. Relative to history, this type of consistent weakness for such an extended period has been unprecedented. The only other period where there was any sort of consistent weakness was from October 1979 through October 1981. Back then, there were only three positive y/y readings in 25 months, but the magnitude of the y/y declines was significantly less than in the current period.

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