Bull Vs. Bear. The Line In The Sand?

Backing up their claim from a fundamental perspective, our heroes in horns contend that the current rally reflects a "correction" of December's fear-based selling. The Fed changed its course and promised not to be stubborn. And then on the trade front, everybody expects a deal of some form to get done sooner rather than later. And since the President is known for negotiating via his Twitter account, last week's developments could be ignored.

So, with two of the big three fears out of the way and the current earnings parade being viewed as "not as bad as feared," the bulls argue that it's onward and upward from here.

The Bear's View

As you might suspect, our furry friends have a slightly different take here. Those in the bear camp remind us that a robust bounce off an emotional low is completely normal and that more times than not, the indices tend to revisit or "test" the lows a time or two. Thus, the failure to simply blast through the 200-day suggests that the recent bounce may have run its course.

Those seeing the market's glass as half-empty counter the "good action" argument with the idea that "FOMO" (fear of missing out) and a dip-buying mentality has returned, and that neither is likely to last long.

The reasoning here is the market's third big fear (#GrowthSlowing) has not been "solved." In fact, the problem is getting worse.

Bond Yields Not Jiving

Exhibit A in the bear camp's argument is the action in the bond market. In short, yields all over the globe are falling. And the U.S. is not exempt as the 10-Year made a new 13-month/cycle low last week.

10 Year T-Note Yield - Weekly

View Large Chart

As the chart above illustrates, the yield on the U.S. 10-Year has fallen from above 3.2% in November to 2.6% last week. Not exactly the type of behavior one might expect during a stock market rally.

Looking around the globe, the trend is the same. The yield on the German Bund has declined to 0.09%, from above 0.50% in October. And Japan's 10-Year yield went negative.

On that note, according to Bloomberg, nearly $9 trillion of global bonds ended the week with negative yields, an amount that is up about 50% since late last year.

The key point is that falling rates don't jive with an "everything is peachy keen" stock market outlook. So, while the stock market appears to be in an optimistic mood, bond traders have a different view.

The problem here is pretty straightforward - global growth continues to slow. For example, the European Commission cut its 2019 GDP estimate by nearly a third last week. The expectation for eurozone GDP growth now stands at 1.3%, down from 1.9%. That was a hefty cut, and a surprise to many.

Next, Italy wins the booby prize for being the first country to officially enter recession. Growth in Germany is faltering due to the slowdown in China. Australia's central bank cut it's outlook for the country's growth. And India's central bank surprised traders by cutting rates last week.

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Disclosure: At the time of publication, Mr. Moenning held long positions in the following securities mentioned: none - Note that positions may change at any time.

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