It’s been all too common to read that “stocks ignored the bearish move in bonds.”
While that's been true at times, the bigger picture doesn’t support it and ignoring it could be costly.
The cost could come from both being in the wrong trade or missing the opportunity to enter new trades early as they are developing.
This week we’ll look at the effect bonds have had on stocks and an investment theme that's looking promising after being pulled down by the bear market – in stocks.
This week’s Outlook is another example of the quote shared a few weeks ago,
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” - Mark Twain
There’s Nothing Stealth About This Bear Market
The S&P 500 is up about 13% for the year, and about only 32% of the 500 stocks are outperforming the index
The Equal Weighted S&P 500 ETF (RSP) is up about 9.5%, and about 38% of stocks in the index are outperforming it.
On the bearish side of the index, however:
50% of the S&P 500 is down for the year
29% of the S&P 500 is down more than 10% year-to-date
While the year-to-date numbers are discouraging, the bear market worth focusing on isn’t measured year-to-date.
The trend to focus on is the increasing pressure that higher interest rates are having on the broad market.
In the chart below, you can see that TLT has had a stair-step decline in price, which represents the increase in rates. At the same time, the SPY index has managed to work its way higher when the TLT rallies or goes sideways, but the percentage of stocks staying above their 50-day (blue) and 200-day moving averages (green) has been accelerating lower.
It’s clear that the last push lower in TLT (move higher in rates) has had an increasingly bearish impact on S&P 500 stocks trying to stay above key moving averages, which means they are going down.
The Indexes Are Near All-Time Highs. Will The Broad Market Follow?
Comments
Log in or sign up to join the conversation.