Sometimes the market behaves just as expected, and sometimes it seems to go completely off script.
So far this year, there have been four surprising—at least, to some—twists that seem at odds with conventional wisdom among investors.
Yields Declining, Not Rising
The Federal Reserve began raising rates in December, but Treasury rates have actually been declining since. Year-to-date, 10-year Treasury yields have slipped some 18%, dropping to 1.86% this week—its lowest levels in nearly a year.
What’s also interesting is that the downward pressure on yields has been felt across the curve—even in the shorter end, where Fed action is a key driver.
The flip side of that is strong investor demand for safe bonds such as government high-grade debt. For example, the iShares 20+ Year Treasury Fund (TLT | A-83) has gathered nearly $2 billion in fresh net inflows in 2016, while the iShares Short Treasury Bond (SHV | A-97) has attracted $2.7 billion year-to-date. Midterm bond funds are also seeing net creations.
These Treasury funds are all delivering positive returns when the U.S. stock market is not:
At the heart of this trend is growing concern about the health of the U.S. and the global economy given various data points suggesting a slowdown may be taking hold.
Gold A Top-Performing Asset
No one has liked gold for the past few years—even in 2015, as the stock market rally faltered. Gold prices declined more than 10% last year, after ending in the red nearly 3% the year before, and down some 28% in 2013. Gold has had a tough go in the past three years.
But in January of this year alone, the SPDR Gold Trust (GLD | A-100) found itself among the most popular ETFs, raking in nearly $1 billion in net creations in four weeks. As of today, inflows into the trust have reached $1.75 billion year-to-date. Other physical gold ETFs, such as the iShares Gold Trust (IAU | A-100) and the Van Eck Merk Gold Trust (OUNZ | B), have also seen net inflows.
The fresh assets have come as gold prices have risen, outperforming just about every asset year-to-date. GLD is up nearly 9% in 2016. The chart below shows that performance relative to the SPDR S&P 500 ETF (SPY | A-98):
Like the case in Treasury bonds, gold is a safe-haven play this year. Investor confidence in the resilience of the U.S. economy and on the Fed’s ability to push rates higher currently isn’t all that strong. A weakening in the U.S. dollar has also contributed to gold’s strength.