Barclays: Wall Street could be dead wrong about this year's most popular idea
Both the recent increase in interest rates and renewed questions about the duration of QE3, sparked by the release of the December FOMC minutes, have raised concerns about a 'Great Rotation' out of credit and into stocks.
Barclays notes that the story goes something like this: negative total returns in fixed income and increasing equity prices will drive investors to sell the fixed-income assets they have accumulated over the past several years and buy stocks. This "Great Rotation" will force investment grade corporate spreads wider.
However, in nearly 100 years of data, Barclays finds no evidence of a period when rates rose, spreads widened, and equity returns were positive.
Risky assets are generally correlated, and when interest rates increase, this is usually because of...