Stocks 'no brainer' over bonds

With the Dow Jones Industrial Average and the S&P 500 just shy of all-time records, despite Friday’s selling, U.S. stocks are still looking good and may be able to build on 2019's double-digit gains.

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There is a “clear case for stocks over bonds,” analysts at Bank of America Merrill Lynch wrote this week.

For starters, the S&P 500 dividend yield, at 1.91 percent, is trading higher than the 10-year Treasury note’s 1.74 percent yield. This signal has foreshadowed stocks beating bonds over the next 12 months in 94 percent of instances historically, notes BofA in a research report.

Toss in strong reports from JPMorgan Chase, United Healthcare and Netflix this week, corporate profits are tracking ahead of expectations. So far, 15 percent of S&P 500 companies have reported third-quarter results with 82 percent beating expectations.

TickerSecurityLastChangeChange %
JPMJP MORGAN CHASE & CO.129.63-0.95-0.73%
UNHUNITEDHEALTH GROUP INCORPORATED275.56+1.33+0.48%
NFLXNETFLIX INC.305.16+2.56+0.85%

“I still think we are in a secular bull market, I think earnings are going to come in again better than people think,” Capital Wealth Planning Market Strategist Jeff Saut said during an interview on FOX Business.

Saut also thinks the negative noise on trade and recession fears plaguing the market on a daily basis will die down.

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“I think trade tensions will ease eventually, I think earnings are going to re-assert themselves, I think the economy is going to pick up and I think there is going to be no recession, I think people have been running around crying for a recession for the past two years are going to be just wrong again," he said.

Record low unemployment, rising wages and early signs that the U.S. housing market is recovering all bode well for economic growth.

Still, wild cards do remain. The manufacturing sector is slowing and retail sales this week dropped 0.3 percent, the first drop in seven months, as reported by the Commerce Department.

TickerSecurityLastChangeChange %
CATCATERPILLAR INC.141.52-1.66-1.16%
BABOEING COMPANY370.91+3.91+1.07%
AMZNAMAZON.COM INC.1,745.53-7.26-0.41%

Next week, investors will get more earnings with one-quarter of the S&P reporting results including big names such as Caterpillar, Boeing and Amazon and fresh economic data points on manufacturing, home sales and durable goods.

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