Do Bond Investors Know More Than Equity Investors?

Historically, I have put more weight on what the bond markets are telling me than what the equity markets have been showing me regarding global growth and political stability. Having been, for the most part, trading fixed income and FX during my trading years, this proved to be very self-serving. I have been trying to reconcile the fact that for most of this year, the two markets, which historically have been negatively correlated, in 2109 have both been performing well.

2019 has been a win win-win year for investors in most asset classes.

Here is an excellent overview of various asset class returns for the U.S. markets (source Charlie Bilello)

2019 through April has been a can’t miss year for investors.(Gold being the only outlier)

And then May arrived, we have been skeptical that the global equity markets could hold near the highs and continue higher, given all of the global political challenges along with slower global growth. Having read many of the research reports saying that stocks are not expensive, my feeling is that the bond market is sending a signal that all is not well and the past few days the global equity markets have started to catch on to some of the same themes that have driven yields lower.

Warning signals:

The SOXX (semiconductor sector index fund) which has been on fire since the end of 2018, has retraced close to 50% of the move since April.

The VIX index is establishing a new range, well above the 12.50 longer term support level.

AUDJPY is a currency cross we follow for signs of risk on/off.  The cross was stable between 78.00 and 80 from January to April, but has fallen since mid April to the current 75.50 level.

The S&P index has broken important support at 2800, support is currently at the 2780 level. A break opens for a test of 2720 level from early March.

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TickerDate OpenedEntry PriceStopTarget PriceCurrent Price% Change

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