U.S. stocks have returned more than junk bonds after they fled a decade

U.S. stocks have returned more than junk bonds after they fled a decade, valuations have fallen to a record high relative to credit - and investors withdrew more money than ever for equity funds.

The Standard & Poor's 500 Index rose 17 percent including dividends since June, compared with 10 percent for the Barclays Capital U.S. Corporate High Yield Index. The gauge of equity is the rate of its gain over six months Bond Index since 1999.At the same time, the rally of more than 120 percent in junk bonds since 1998 has left them more money than ever from stocks based on earnings yields measurement of annual profits as a percentage of the price.

"People have gone too far the trade," said Peter Sorrentino, who helps oversee $ 13.8 billion at Huntington Asset Advisors in Cincinnati. "The next step is to move from fixed instruments in inventory. Junk bonds have so little bonus at the moment. It's like the last chapter in which people will finally capitulate. "

Individuals do not reflect the opinion, taking $ 55.3 billion from equity mutual funds since late June, after 11 billion dollars was wiped off the value of the shares of the United States between October 2007 and March 2009. withdrawals for the third quarter came as S & P 500 rose 11 percent, the first time an advance of three months does not promote investment, according to LPL Financial Corp. in Boston.

Stocks Privileging

Huntington, PNC Wealth Management and Goldman Sachs Group Inc. say stocks will beat debt speculative as the economy improves. S & P 500 earnings per share are set to increase by 37 percent in 2010, the largest increase in 22 years, estimates of over 10,00
The S & P 500 rose 0.5 percent to 1204.90 from 11:39 in New York.

The benchmark for U.S. equities fell 2.2 percent to 1,199.21 weeks ago that profits from Cisco Systems, Inc. in San Jose, California, Burbank, California, Walt Disney Co. trailed estimates analysts. S & P 500 which beat estimates by more than 70 percent of the time helped push the gauge up 7.5 percent this year.

Stocks remain cheap relative to bonds, even after the rally. Debt rated below Baa3 by Moody's Investors Service and BBB-by S & P pays an average yield of 7.25 percent, compared to a yield gains of 6.64 percent for the S & P 500 . It is the smallest gap since Barclays started in 1991.

"Overweight" rating

Goldman Sachs in New York last month has advised clients to start increasing the proportion of shares they own in relation to the debt, citing the expansion of the economy. The bank the world's most profitable investment lowered its rating on investment grade corporate bonds to "neutral," saying they were likely to return next to nothing compared with a gain of 14 per cent of the shares of more 12 months, according to an Oct. 15 note to clients.

Junk bonds, where rates of Goldman "overweight," will probably trail stocks yielding more than 10 percent in the year ahead, based credit strategist Alberto Gallo.

"It will be harder for a high yield stocks to outperform over the next 12 months," he said in an interview. "We already had two years in a row where a high yield was better."

Investors should buy shares that "resemble bonds" with international sales, debt below average and growing dividend, "said Chris Hyzy, New York, chief investment officer of U.S. Trust, Bank of America Corp. unit oversight of $ 339.9 billion in client assets.

"Sweet Spot"

"It's the sweet spot for a balanced investor looking to reallocate excess of the ownership of fixed income," he said. "High yield is fairly valued. We expect the gap between the performance gains on equities and fixed income returns to close dramatically in the next 12 to 18 months."

Shares of retailers and technology companies such as JC Penney Co. and Motorola Inc. have surged since June 30, outperforming their obligations in a reversal of the first half, where shares have fallen and scrap metal rallied.

Department-store chain JC Penney in Plano, Texas, returned 47 percent since June 30, compared to a gain of 0.02 percent of its senior unsecured debt, rated Ba1 by Moody's and BB by S & P . This contrasts with the first six months, when the shares have fallen 19 percent and debt has increased by 7 percent.

Motorola, the second largest U.S. mobile phone special, climbed 23 percent this half, five times the 4.2 percent gain on its debt. During the first six months, Schaumburg, Ill.-based Motorola bonds returned 16 percent, while its stock has lost the same amount.

Car Rental

Avis Budget Group Inc. rallied by 38 percent since June 30, while the obligations of the company gave 11 percent. Year to date, the obligations of the rental company cars increased 16 percent, compared to 3.6 percent for the stock.

"If I had to add money in a portfolio, I add the stock," said James Dunigan, chief investment officer at PNC Wealth Management in Philadelphia, which oversees $ 105 billion. "The valuation of the shares remain attractive. The earnings outlook continues to be positive. We will probably return to a developing economy in the first part of 2011. "

While the S & P 500 has recovered ahead 2.15 trillion in market value since July, shares are getting cheaper relative to earnings forecasts. The revenue growth that analysts predict will exceed 13 percent in both years: the index is trading at 12.5 times 2011 and 11 times earnings projections for 2012. The S & P 500 price / earnings average since 1954 is about 16.5, the data show.

QE

At the same time, the Fed policy called quantitative easing to buy as much as $ 600 000 000 000 Treasury Bills has reduced yields on government bonds are the benchmark for corporate borrowing and mortgages. Rates on the junk has fallen to 5 1/2-year 6.97 percent on Nov. 9, from 9.5 percent five months ago and a record 23 per cent in December 2008, according to Barclays Capital .

"Quantitative easing is extremely favorable to short-term actions," said Lucette Yvernault, which helps oversee the equivalent of about 7 billion euros (9.5 billion) at Schroders Investment Management Ltd London. "The adverse effects of the ANC is that investors are not necessarily reinvest in the U.S. economy, but instead fuel more growth in emerging markets."

benefit of the United States can continue to increase as more executives than forecast increase more compared to lowering them. EBay Inc., United Parcel Service Inc. and 196 other companies raised earnings estimates above forecasts of analysts last month that 130 companies cut, the biggest gap.

Greed kicks in

The S & P 500 earnings yield on average to 5.6 percent by the last bull market that ended Oct. 9, 2007, according to data compiled for reported earnings. Using the estimated revenues, the total yield of 7.1 percent, 0.2 percentage point lower than the average for junk bond followed by Barclays.

"Greed relax in, and this will propel the stock market," Sorrentino said Huntington Asset.

Although stocks have beaten bonds in 4 1 / 2 months, investors have been more successful this year with fixed income securities. The measurement of Barclays junk bonds returned 15 percent since Dec. 31, double the advance in the S & P 500.

Investors piled about 190 billion dollars in U.S. bond funds this year by 31 October, a pace that exceeds last year's record $ 214.1 billion, according to Cambridge, Mass., research firm EPFR Global. Customers earned about $ 56 billion of equity funds and 74.6 billion in 2009.

Flows to junk bonds fell to 1.7 billion in October from $ 3.35 billion in September, more than any year, preliminary data show EPFR. This brings the total to around $ 8.6 billion at October 31, compared to $ 19.9 billion in 2009.

"Ultimately the Fed will succeed," said Wayne Lin, a fund manager at Baltimore-based Legg Mason Inc., which manages $ 677 billion. "It's just a question of how they will succeed and how long will it take for them to convince people to take money in the mattress and start to implement. "