bonds vs stocks

With stock markets rallying lately, cautious investors are looking to get some profits from equities while keeping conservative portfolios. Mark Caner, president of W&S Financial Group Distributors, discusses a new variable annuity product that aims to do exactly that.

Bill Gross, the leading proponent of the "New Normal" -- the idea that stocks will return just 3% a year for the foreseeable future -- has been wrong over and over again. So why does anyone pay attention to his predictions?

Now, even over-the-top bears like bond giant Pimco are doing a bullish about-face, and that makes it tougher for fund managers to keep avoiding the stock market. If they start returning to a historical stock allocation, that could further boost equity prices.

The S&P 500 has rebounded 20% since its July 2010 low, which comes as bad news to perma-bears like Nouriel Roubini, Gary Shilling and Bill Gross, all of whom predicted the opposite. This raises several questions about how stocks move, and why pundits say the things they do.

Equities have finally put up decent-enough returns on the year to make the paltry yields on bonds almost impossible to tolerate. With rates so low now, more and more investors are moving out of fixed income and back into the stock market. [Video]

The far-sighted ones are looking beyond the election and Fed and seeing a robust global manufacturing rebound and impressive corporate earnings. These strong fundamentals are finally overcoming risk aversion -- and could set the stage for an equity rally.

Yields on emerging-market debt funds and ETFs are certainly enticing these days, especially compared to U.S. Treasurys. Also attractive are the added benefits of portfolio diversification and currency appreciation. But the risks can't be overlooked.

Berkshire Hathaway CEO Warren Buffett said stock prices are likely to rise faster than bond prices, but that many investors are making the mistake of choosing to buy bonds due to a lack of confidence in the U.S. economy, CNBC reported.

In a welcome sign of investor confidence in an economic recovery, U.S. interest rates grew for the third day in a row as people moved funds from bonds to stocks. But will higher interest rates slow the housing market?

Stocks are underperforming so far in 2010, and Treasury bond yields are low, too. So how can you get good returns without excessive volatility? Standard & Poor's Equity Research suggests mixed-asset mutual funds, which capture the strengths of both stocks and bonds.