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While the
two markets have loosely tracked one another -- which makes sense given that
both are risky asset classes whose fortunes are closely tied to the health of
corporate bottom lines and the economy as a whole -- the stock market has
generally outpaced the high yield (e.g., "junk") bond market since
the S&P 500 index bottomed in March 2009.
That said, the last time the performance gap between the two was as
wide as it is now was in the summer of 2007, just before things fell apart.
Back then,
as some of you might recall, riskier credit markets
began to falter as it suddenly dawned on fixed-income investors that the jig
was up for a bubble-engorged economy and a financial system corrupted by
recklessness and greed.
Equity
investors, meanwhile, remained oblivious to everything that was going on
around them and drove the S&P 500 to a new record high in October of that
year.
Reality
took hold after that, and share prices began a sickening 17-month slide,
cutting the value of the market by more than half.
The
obvious question, of course, is whether we are on track for something
similar, or is it different this time?
Michael J. Panzner
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