Bond Allocations Hit Cycle Lows
Investor allocations to bonds have reached the lowest point since 2007.
We’ve seen this happen before.
Bond allocations reached major lows at both of the last two major stock market peaks (2000, 2007), and basically served as a bear market harbinger.
Aside from giving clues on the stage of the market cycle, this chart also served as a contrarian bullish indicator for bonds — with treasuries turning in strong double-digit returns after those two big troughs (and doing so while stocks dropped).
So I think this chart says as much about the stage of the market cycle, as it does about the importance of asset allocation (bonds performing their role as diversifiers and risk dampeners), but also about the big bullish setup in bonds in general.
As discussed the other day, bonds have all the makings for a contrarian bullish setup (cheap valuations, bearish sentiment, cycle-low allocations) — and, for now, lack only the technical and macro confirmation (the tactical/timing element).
In other words, don’t dismiss bonds in your asset allocation and portfolio strategy plans — and definitely don’t doubt their role as downside dampeners when the next big downturn comes.
Key point: Investor allocations to bonds are at an 18-year low.
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