Update on Last Week's Action in Stocks and Bonds
So I may as well weigh in again here, since last week's action in stocks caught a lot of attention. Here goes.
First, until Friday the drama was more whipped up by the media than might have been indicated in the averages themselves, as we already pointed out last week. But Friday's close down over 100 points on the Dow and the commensurate fall in the Transportation Index begins to raise red flags. If we see either or, more importantly, both of these averages fall below their August lows, we raise the red flags even higher.
The other disturbing note for stocks would be the Russell Small Cap Index ($RUT). Small Cap stocks sometimes serve as a kind of leading indicator in these sorts of situations. When the index fell to support earlier in the week, then bounced up during Wednesday's happy hop in response to the Fed's announcement of continued low rates - the markets biggest gain for the year - we wondered whether the Small Caps might return to an uptrend. But, sadly, they really deteriorated after that, so now we've got to wonder whether they're sending a signal that their big brothers will soon follow.
Heightened vigilance called for here.
As for bonds, all we can say - or rather repeat - is that all the noise about how treasury yields "must" go up - based either on the awful fiscal state of the U.S., or the end of the 30-year bond market bull, or the claim that the U.S. economy has "turned the corner" after the 2008 financial crisis, or whatever other logic the accepted wisdom has foisted on us, now going on more than a couple of years - bonds remain stubbornly strong and yields therefore remain low and, at least last week, heading even lower. So to all you geniuses who laughed at the very idea of not selling out at least your long bond positions, if not all your bond positions, who's laughing now? Last week's action repeated a pattern we've seen before: when worries increase, people buy US treasuries, even the 30-year treasury. And so that pattern continues.
We don't prognosticate, nor do we make buy or sell recommendations here. But we will reiterate that the so-called iron-clad logical thesis that you've got to be some kind of moron to hold or to have bought long bonds looks like it's about to turn into today's version of Chicken Little. All you geniuses need to stop talking to and staring at each other. Look up: Neither the sky nor the price of bonds has fallen.
For today, the bond market is closed for Columbus Day, but the stock market isn't - one of those anomalous days in the markets. So bonds take a rest as stocks gear up for what may be more fun and games this week.
First, until Friday the drama was more whipped up by the media than might have been indicated in the averages themselves, as we already pointed out last week. But Friday's close down over 100 points on the Dow and the commensurate fall in the Transportation Index begins to raise red flags. If we see either or, more importantly, both of these averages fall below their August lows, we raise the red flags even higher.
The other disturbing note for stocks would be the Russell Small Cap Index ($RUT). Small Cap stocks sometimes serve as a kind of leading indicator in these sorts of situations. When the index fell to support earlier in the week, then bounced up during Wednesday's happy hop in response to the Fed's announcement of continued low rates - the markets biggest gain for the year - we wondered whether the Small Caps might return to an uptrend. But, sadly, they really deteriorated after that, so now we've got to wonder whether they're sending a signal that their big brothers will soon follow.
Heightened vigilance called for here.
As for bonds, all we can say - or rather repeat - is that all the noise about how treasury yields "must" go up - based either on the awful fiscal state of the U.S., or the end of the 30-year bond market bull, or the claim that the U.S. economy has "turned the corner" after the 2008 financial crisis, or whatever other logic the accepted wisdom has foisted on us, now going on more than a couple of years - bonds remain stubbornly strong and yields therefore remain low and, at least last week, heading even lower. So to all you geniuses who laughed at the very idea of not selling out at least your long bond positions, if not all your bond positions, who's laughing now? Last week's action repeated a pattern we've seen before: when worries increase, people buy US treasuries, even the 30-year treasury. And so that pattern continues.
We don't prognosticate, nor do we make buy or sell recommendations here. But we will reiterate that the so-called iron-clad logical thesis that you've got to be some kind of moron to hold or to have bought long bonds looks like it's about to turn into today's version of Chicken Little. All you geniuses need to stop talking to and staring at each other. Look up: Neither the sky nor the price of bonds has fallen.
For today, the bond market is closed for Columbus Day, but the stock market isn't - one of those anomalous days in the markets. So bonds take a rest as stocks gear up for what may be more fun and games this week.
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