US EQUITIES, LIGHT AT THE END OF THE TUNNEL
By the end of 1999, U.S. equities and investment-grade bonds had both enjoyed a nearly two decade-long bull market, precipitated in large part by steady declines in interest rates and inflation that boosted the prices of financial assets. Since then, their paths have diverged. Interest rates have fallen to near-historical lows, extending the bond bull market to more than 30 years, while equities have stalled. From 2000 to 2012, bonds provided a 3.9% inflation-adjusted (real) return, compared to a -1.1% real return for equities. By contrast, during the past 30 years the relative returns for both asset classes have been quite different, with equities producing an 8.1% real return and bonds generating a 6.1% real return.