Earlier this fall fund giant Fidelity announced that the post-crisis migration of spooked investors out of equities and into bonds and cash had pushed fixed income assets to account for more than half of the $1.6 trillion Fidelity manages. What’s happening at Fidelity is symptomatic of a massive national preference for bonds. As Fidelity’s asset allocation research team notes, bond inflows industry wide — funds and ETFs — have outpaced stock inflows 33-1 since the financial crisis began. ($1.1 trillion vs. $33 billion.)

And that’s looking like some pretty crappy timing, according to Fidelity’s AA team. In a recent report: US Equities: Light at the End of the Tunnel, Fidelity makes the case that based on current valuations for stocks and bonds, stocks look like the far better investment. On the plus side for stocks is the fact that the average 12-month PE ratio for the S&P 500 (13.8 when the report was published) is historically below average. Looking at data going back to 1926, the AA team found that when starting from a similar valuation, the S&P 500’s annualized real (inflation-adjusted) return for the next five years was 10%.

Source: Forbes

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