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WATCH: Contrarian call: Why bonds will beat stocks

Talking Numbers

Which will be better in the next few months: stocks or bonds? Andrew Burkly, head of Institutional Portfolio Strategy at Oppenheimer & Co. gives his insights.

Stocks are reaching record levels and yet bond yields have been rising, too.

So, which will break first, stocks or bonds? We ask Andrew Burkly, head of Institutional Portfolio Strategy at Oppenheimer & Co. which market he thinks is the right one to play.

Surprisingly, he says bonds. He says bonds paying a higher yield should attract investors away from stocks. Right now, however, we’re seeing a selloff in bonds (leading to higher yields) and run-up in stocks.

(Read: So much for that pullback idea: Stocks keep climbing)

What’s causing the sell-off in bonds? Part of it has to do with economic data.

For a while now, the US Federal Reserve Bank has been adding dollars to the financial system buying government and mortgage bonds. Over the past several months, that’s been to the tune of $85 billion each month.

Fed Chairman Ben Bernanke hinted that the program (dubbed “quantitative easing”) will begin tapering once economic data improve. Sure enough, GDP numbers came out Wednesday showing growth of 1.7% on an annualized basis during the second-quarter of 2013, much higher than the 1.0% expected.

(Watch: Fed tapering will be for wrong reason: El-Erian)

That, combined with some strong manufacturing data, got investors thinking maybe the Fed will retreat earlier than initially thought. So, they began selling their bonds, pushing bond yields up. Meanwhile, some of that money has gone to stocks with their growing earnings. According to Thomson Reuters, earnings for companies in the S&P 500 have a growth rate of 4.2%

But lower bond prices may mean a buying opportunity compared to stocks over the next couple of months, according to Burkly.

To hear why, watch the video above.

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