Stock and Bond Price Action Grinds On Along With Lent
Today we look at recent stock and bond price action and compare this to Lent. Stocks and bonds you're likely familiar with. If you're not sure about Lent, a quick and dirty summary would be that it's basically a penitential season that calls for a degree of fasting, abstinence from certain food and drink you may otherwise legitimately enjoy. It also calls for making the effort to pray more and be more charitable towards others - giving of both your material substance, as well as giving yourself in acts of kindness, patience, even cheerfulness in the face of annoying behavior (a real stretch for some of us). Because it lasts for 40 days - around 6 weeks - it can be a grind, especially for those of us who aren't easily disposed to prayer and fasting, or naturally disposed to being especially - at least overtly - charitable. For us imperfect humans, Lent can be a grind.
As for stocks and bonds, the case can be made that they're a grind too. Let's see why.
Stocks ended March up about 1.8%. Bonds were up too. If you look at stock price action and extrapolate, that's a rate of 1.8% per month, or 21.6% on an annualized basis. If you look at the bonds action, 30-year Treasuries, which began the month at 3.13% yield finished at 2.81%. One of our brain trust folks thinks yields below 3% signals a reversal of the trend to higher yields. And since the break below 3% took place on March 20th, and has not only sustained, but trended even lower through the end of the month, it will be interesting to see what they have to say about the prospects for mid-term yields for bonds. At the very least, the trend to higher rates seems to have stalled, even as just about everyone was saying the bond bull market that began in 1980 was definitively over and rates now had only one way to go: up.
Can we count on 21.6% annualized for stocks, signalling a continuation of the bull market that began in 2009? Can we assume bond yields will now continue lower, consigning a bond bear market to the trash heap? Doubtful. For stocks, the jump in March still hasn't surpassed the Dow's 2018 highs. The fact is, recent action, despite the drama of the "V" recovery from the December debacle, has been, at the end of the day, range bound. And it's still not clear that the drop in bond yields might be anything more than a correction in a new general trend up. Besides, Dow Theory continues to signal a bear market, and hasn't given up on that signal - yet.
Of course, with bonds, there's always the possibility that lower yields, combined with the inverted yield curve (yes, we've got one now) could be forecasting a recession. And that wouldn't necessarily negate a bond bear market. It would simply be the response to deteriorating economic conditions, which can happen in the midst of bond bears.
So we grind along, as is the case most of the time with markets. You'll likely agree if you follow markets a lot.
The thing about grinds is that they can grind you to dust if you let them. With stocks and bonds, you can't focus too intently for too long on daily price action. A good arguments can be made that you shouldn't look at daily price action at all, unless you're an active trader. (Previous posts bring this up from time to time.) What about Lent?
Well, there we've got a thing called "Laetare Sunday" and it comes up tomorrow. The Church, in its solicitousness and wisdom, centuries ago recognized the need for a respite from the grind. Laetare Sunday pops up right around the middle of Lent. If you've been taking the season seriously, you're just starting to feel the grind and when you look at your calendar, Easter's still three weeks away. But then Laetare Sunday rides to the rescue.
Traditionally the priest (if you're Catholic) wears rose-colored vestments on Laetare Sunday rather than purple (a penitential color worn throughout Lent) There's your signal. The liturgy begins with dose of rejoicing. You glance up from the grind of Lent and see Easter on the horizon. Maybe you celebrate a little with some special treats. When our kids were younger, still living with us, we'd serve some delights to mark the day. (Food should be well integrated into the various seasons and rhythms life, not just something you eat.)
Besides, Sunday should be a day of rest to begin with, right? With Laetare Sunday, we get rest and a splash of joy in the midst of our penitential season of Lent.
What about stocks and bonds? Hey, they're not going anywhere. But markets are closed on Sunday, so you can just set them aside and enjoy your Laetare Sunday.
Rest and rejoice! I highly recommend it. Maybe with a little accompaniment? Did I hear an Amen? Do I hear Kathleen Battle singing one of Handel's lovely arias from Messiah?
As for stocks and bonds, the case can be made that they're a grind too. Let's see why.
Stocks ended March up about 1.8%. Bonds were up too. If you look at stock price action and extrapolate, that's a rate of 1.8% per month, or 21.6% on an annualized basis. If you look at the bonds action, 30-year Treasuries, which began the month at 3.13% yield finished at 2.81%. One of our brain trust folks thinks yields below 3% signals a reversal of the trend to higher yields. And since the break below 3% took place on March 20th, and has not only sustained, but trended even lower through the end of the month, it will be interesting to see what they have to say about the prospects for mid-term yields for bonds. At the very least, the trend to higher rates seems to have stalled, even as just about everyone was saying the bond bull market that began in 1980 was definitively over and rates now had only one way to go: up.
Can we count on 21.6% annualized for stocks, signalling a continuation of the bull market that began in 2009? Can we assume bond yields will now continue lower, consigning a bond bear market to the trash heap? Doubtful. For stocks, the jump in March still hasn't surpassed the Dow's 2018 highs. The fact is, recent action, despite the drama of the "V" recovery from the December debacle, has been, at the end of the day, range bound. And it's still not clear that the drop in bond yields might be anything more than a correction in a new general trend up. Besides, Dow Theory continues to signal a bear market, and hasn't given up on that signal - yet.
Of course, with bonds, there's always the possibility that lower yields, combined with the inverted yield curve (yes, we've got one now) could be forecasting a recession. And that wouldn't necessarily negate a bond bear market. It would simply be the response to deteriorating economic conditions, which can happen in the midst of bond bears.
So we grind along, as is the case most of the time with markets. You'll likely agree if you follow markets a lot.
The thing about grinds is that they can grind you to dust if you let them. With stocks and bonds, you can't focus too intently for too long on daily price action. A good arguments can be made that you shouldn't look at daily price action at all, unless you're an active trader. (Previous posts bring this up from time to time.) What about Lent?
Well, there we've got a thing called "Laetare Sunday" and it comes up tomorrow. The Church, in its solicitousness and wisdom, centuries ago recognized the need for a respite from the grind. Laetare Sunday pops up right around the middle of Lent. If you've been taking the season seriously, you're just starting to feel the grind and when you look at your calendar, Easter's still three weeks away. But then Laetare Sunday rides to the rescue.
Traditionally the priest (if you're Catholic) wears rose-colored vestments on Laetare Sunday rather than purple (a penitential color worn throughout Lent) There's your signal. The liturgy begins with dose of rejoicing. You glance up from the grind of Lent and see Easter on the horizon. Maybe you celebrate a little with some special treats. When our kids were younger, still living with us, we'd serve some delights to mark the day. (Food should be well integrated into the various seasons and rhythms life, not just something you eat.)
Besides, Sunday should be a day of rest to begin with, right? With Laetare Sunday, we get rest and a splash of joy in the midst of our penitential season of Lent.
What about stocks and bonds? Hey, they're not going anywhere. But markets are closed on Sunday, so you can just set them aside and enjoy your Laetare Sunday.
Rest and rejoice! I highly recommend it. Maybe with a little accompaniment? Did I hear an Amen? Do I hear Kathleen Battle singing one of Handel's lovely arias from Messiah?
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