Gundlach Is Right About Junk Bonds And Stocks

Stock enthusiasts think the worst is behind us. Of course, they appear to be ignoring the fact that bear market rallies are quite common, and that the current upswing may just fit the bill.

The average bear rally in history is approximately 11%. We stand at roughly 11.5% off of the correction lows right now. What’s more, there’s a fair amount of technical resistance in and around the S&P 500 range between 2625 and 2650.

2625

Credit key players in the Federal Reserve for the recent upturn. Indeed, the timeline for the correction that began three and a half months ago is worthy of review.

Back in October, when the Dow had hit an all-time record, Fed Chairman Powell stated that the rate range was a “long way from neutral.” Stock sellers overwhelmed buyers through the start of the fourth quarter.

By November, however, Powell had changed his tune. He went form claiming that the range for the Fed Funds rate was a long way from neutral to a place that was “just below the neutral range.”

A completely different outlook in a matter of weeks? Seriously?

Granted, the stock market does not care if Powell bowed to pressure from the Trump White House; the S&P 500 does not care if the head of the Fed listened to a financial celebrity like Jim Cramer. Nevertheless, Powell backtracked and stocks gained ground in November.

Then things became very interesting in December. Whereas risk asset investors had come to believe that the Fed might be “one and done” on rate hikes, Powell described a likelihood of two more occurrences in 2019.

More important? Buyers had hoped to hear a little something about an eventual end to balance sheet reduction known as quantitative tightening (QT). No dice. Powell praised the $50 billion per month in QT. A December bloodbath across risk assets ensued.

Fed heads shifted yet again in early January. Chairman Powell said that the central bank would be “patient” with respect to any additional rate hikes. Vice Chairman Clarida invoked the word “patient” as well. Meanwhile, former chairwoman Janet Yellen said that she does not expect any more rate hikes in this cycle.

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ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser ...

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