Displaying items by tag: Treasuries

Thursday, 15 February 2018 10:40

Why Stocks Will Withstand Inflation

(New York)

There have been a lot of bearish articles lately and few bullish ones. But today we are running are covering an optimistic argument that supports our own view of the market. We have been saying for some time that inflation is not necessarily bad for stocks—they are in fact an inflationary hedge. Now, Barron’s is making a key point about the current relationship between stocks and bonds to show why equities don’t stand to lose much if inflation and rates rise. The reason why is that the spread between equity yields and Treasuries is over 300 basis points, meaning there is a lot of room for rates to move higher before they would be wounded.

FINSUM: We think this is quite an astute view. And while we don’t believe the market is in for another strong run, we think it has a nice cushion for modest gains.

Published in Eq: Large Cap
Thursday, 15 February 2018 10:39

Treasury Yields Hit Four-Year High as Losses Mount

(New York)

The market did something that seems quite odd yesterday. Despite inflation coming out ahead of expectations and Treasury bonds commensurately selling off, stocks rose strongly. It was the first time the two asset classes had moved in significantly opposite directions in some time. Yields on the ten-year bond extended their four-year high to 2.92%, seven basis points higher than in the previous session.

FINSUM: We have been saying for the last couple of weeks that investors would realize inflation wasn’t necessarily bad for stocks. The market seems to have woken up to that reality.

Published in Bonds: Total Market
Tuesday, 13 February 2018 11:17

Goldman Warns of Treasury + Stock Market Calamity

(New York)

Goldman Sachs put out a big warning to the market yesterday. The bank’s fixed income division says that it thinks yields on ten-year Treasuries are going to rise to 3.5% within two quarters as the Fed continues to hikes rates and the market sells off. Goldman called its prediction “not very brave”, indicating it thinks yields might be higher, especially since it feels the Fed will hike four times this year. Goldman’s forecast for rates is much higher than most analysts, so if it comes to pass, it could have big ramifications for equity investors.

FINSUM: If yields rose to 3.5% or above that quickly, we expect the equity markets would perform very poorly, and it may be the kind of scenario where we have a recession.

Published in Bonds: Total Market
Monday, 05 February 2018 10:49

Why This Market Fit Will Get Very Ugly

(New York)

We appear to be in the middle of a long-absent bout of volatility for both stocks and bonds. After a year of almost no volatility, all the major US indices fell strongly last week. The market is also off to a rocky start today. Now, Barron’s is arguing that this could be the beginning of an ugly ride. The reason why is that the recent trend of stocks and bonds being negatively correlated is ending. While for many years bond prices would rise when stocks fell, and vice versa, the opposite is happening now. Because the market fears rate hikes, bonds and stocks are falling in unison, with nothing to give the market comfort. For that reason, the “bond cushion” that has protected markets since the Crisis, appears to be gone.

FINSUM: The whole paradigm of markets is changing right now. Stock investors cannot simply flee into Treasuries as they have for years, which means there is little place a hide—a fact which could bring more serious losses.

Published in Eq: Large Cap
Friday, 02 February 2018 10:27

Bank of America Warns of Big Sell Off

(New York)

So those following the news will have noticed that Bank of America’s key stock market indicator, the “Bull & Bear”, has been flashing red for the last couple of weeks. Now, the brightness is getting stronger. The recent rush out of Treasuries and into stocks has been the fastest ever, which has BAML worried that markets are about to crash. The rotation amounted to $102 bn flowing into stocks in January alone, which BAML calls “massive”.

FINSUM: The move has been more of a stampede than a flow, but then again, there are a lot of reasons to be worried about rising rates, especially as new Fed leadership is coming in.

Published in Eq: Large Cap
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