Outside the Box: Why dividend-paying stocks are a poor substitute for low-yielding bonds

The U.S. economic recovery since 2009, now arguably long in the tooth, is universally acknowledged to be the most tepid rebound in the post-war period. Sure, headline unemployment is low, but middle-class wages have stagnated, while the labor force participation and home ownership rates are at multi-decade lows.

Yet the S&P 500 SPX, +0.02% gained 7.7% this year through July. That’s after posting a thundering 14.8% compounded annualized return from 2009 through 2015. And high-yield “junk” bonds, which tend to move like stocks, are up a stunning 20% or so since their swoon ended in February.

So what gives? Why have so-called risk assets moved so far, so fast? After all, corporate profits have been weak for six straight quarters.

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