Stocks vs Bonds

The stocks-to-bonds ratio divides the total return of US equities by the total return of long-term US Treasury bonds. It captures the single most important trade-off in a balanced portfolio: over any given stretch, has owning a slice of corporate America paid more than owning the safest long-duration debt the government issues? Because the line is rebased to 100 at the start of the common history, it is not a price — it measures relative performance. When the ratio rises, a dollar compounded in stocks has pulled ahead of the same dollar compounded in long Treasurys; when it falls, bonds have done the better job.

The two legs sit on opposite sides of the classic risk spectrum. Equities are a residual claim on growing profits — volatile, but with the highest long-run expected return. Long Treasurys are a fixed promise of coupons and principal from the US government, the asset investors run toward when they want certainty. Comparing them is really a comparison between owning growth and owning safety, which is why the 60/40 portfolio and every variation of it lives or dies by how this ratio behaves.

A rising line means equities are outrunning long bonds — the normal state of affairs during expansions, when earnings grow and risk appetite is healthy. A falling line means long Treasurys are winning, which historically clusters around recessions, deflation scares, and flights to safety, when collapsing yields drive bond prices sharply higher even as stocks fall. The deepest declines in the ratio are not gentle drifts; they are the panic windows in which long-duration government debt did exactly what it is supposed to do for a diversified investor.

Because both legs use total return, the comparison is fair. Equity returns include reinvested dividends, and the bond leg includes reinvested coupon income — which is the larger part of a bond investor's long-run return. A price-only chart would badly understate bonds, since stripping out coupons would make the safest income asset look like it barely moves. Total return on both sides is what makes the head-to-head honest over decades.

The dominant driver is the direction of interest rates and the economic story behind them. When growth is firm and rates are rising for the right reasons, equities tend to lead and long bonds suffer price losses as yields climb. When growth is failing and the market prices rate cuts, long Treasurys can deliver large capital gains precisely when stocks are falling — the negative correlation that makes them such a prized diversifier. Long-maturity bonds are the most rate-sensitive part of the curve, so this leg moves violently with shifts in the rate outlook.

Inflation is the wildcard that can break the usual relationship. In a disinflationary world, bonds hedge equities beautifully because bad growth news pulls yields down. But in an inflationary shock, both legs can fall together — rising prices punish long bonds through higher yields while squeezing equity valuations — which is why the diversification that worked for decades looked very different in periods like the 1970s and again in 2022. The ratio is therefore a compact read on whether the prevailing regime is one where bonds protect you or one where they do not.

The chart is shaped by long rate regimes rather than a smooth trend. Through the disinflationary boom of the 1980s and 1990s, equities generally led and the ratio trended higher, though long bonds quietly delivered one of the great bull markets of all time as yields fell from early-1980s highs. The early 2000s tech bust and especially the 2008 financial crisis produced sharp drops in the ratio, as long Treasurys rallied hard while equities collapsed — the textbook flight to safety.

The post-2008 zero-rate era pushed the ratio back up as a powerful equity bull market reasserted itself, even though bonds kept grinding out gains from falling yields. The 2020 shock saw another brief, violent bond-led dip before equities recovered. Then around 2022, rising inflation and rapidly rising rates hit both legs at once, a reminder that the stock-bond relationship is conditional on the inflation backdrop rather than fixed. These swings unfold over years, and the lesson of the chart is that the value of holding bonds against stocks depends heavily on which macro regime is in force.

Each month the chart divides the total-return index for US equities by the total-return index for long-term US Treasurys (20-plus-year maturities), then rebases the result to 100 at the first month both have data. Equity total return is built from a broad large-cap index with dividends reinvested; the bond leg reinvests coupon income, which is essential because coupons are the bulk of a Treasury investor's return. Long-dated Treasurys are used deliberately, as they are the most interest-rate-sensitive government bonds and therefore the cleanest expression of duration risk against equity risk.

Two caveats apply. First, the line is a ratio of two indices, not a tradable spread — you cannot directly buy 'the ratio,' and real-world frictions such as fund fees, bid-offer spreads, and taxes are excluded. Second, because the series is rebased to 100, the absolute level is only meaningful relative to its own history, not as a price. MacroRadar sources both legs from public, widely used providers and updates the series monthly.

Stocks vs bonds is the income side of the cross-asset family. It pairs naturally with stocks vs gold, which swaps the safe-income hedge for a monetary one, and with stocks vs commodities, which tests equities against real assets. Reading the three together is revealing: if stocks are losing to bonds, gold, and commodities at the same time, the message is a broad de-risking; if they are only lagging bonds, the story is more likely a growth scare or flight to duration.

It also connects to the inflation-sensitive charts. The money-supply-vs-inflation ratio and the broad inflation backdrop help explain whether bonds are likely acting as a hedge or, as in inflationary episodes, falling alongside equities. And within equities, the growth-vs-value relationship rhymes with this one — long-duration growth stocks behave a little like long bonds, rallying when rates fall and struggling when they rise.

The macro-regime panel above is essential context for this ratio, because the stock-bond relationship is conditional rather than fixed. The same falling line can mean very different things depending on the inflation backdrop: in a disinflationary slowdown it reflects bonds doing their protective job, while in an inflation shock it can reflect both assets falling together. Reading the ratio against the prevailing financial-conditions and inflation regime is what separates a flight-to-safety from a broad repricing.

Historically, a stretched, elevated ratio has tended to coincide with long, calm equity bull markets and low or falling rate volatility, while sharp declines have clustered around recessions and crises. Neither is a forecast. The point of the overlay is to check whether today's stock-bond picture is consistent with the macro environment or diverging from it — divergences are often where the most consequential turns in the diversification relationship begin.

Nearly every diversified portfolio is, at heart, a blend of stocks and bonds, so this ratio is a direct read on whether the core engine of growth has been outpacing the core source of stability. A ratio stretched to historic highs says equities have done the heavy lifting for years, which is comfortable but also the kind of extreme from which bonds have sometimes staged multi-year catch-ups; a deeply depressed ratio has often marked periods of acute stress that, in hindsight, were difficult but rewarding entry points for equity risk.

It is not a timing tool. The value is in pairing the long-run relative-performance picture with the current macro regime shown above to judge whether today's environment has historically favored growth or safety — and crucially, whether bonds are likely to hedge equities at all in the prevailing inflation regime. Treat it as one input into a diversified, long-horizon plan. MacroRadar presents this as a historical indicator, not investment advice.