Mixed Signals That We're Watching
Markets, like people, can give mixed signals. In fact, that may be the norm for both markets and people.
The stock market and the bond market have been giving mixed signals for a while.
For bonds, it's been a bit more straightforward. For a while we had an upward trend of rising yields; now the trend seems to be down. When the trend was up, we had to consider that the long-term bull market in bonds was over. Now that the trend has been reversed, can we say that the long-term bull is still in place. It's a legitimate question. We can't offer a firm opinion, but a couple of observations may help us grapple with the question.
First, yields never go either straight up or straight down. That's pretty much true for all assets. Stock prices don't go in a straight up or down line for very long. So why should it be any different for bonds?
Second, the 30-year bond yield hit its low yield in July 2016. And that's held, despite the ups and downs. This bolsters the argument of those who believe the bull in bonds is over.
We have no indicators besides the level and direction of yields to reference in considering the long-term trend of the bond market. But that's not true for stocks.
In combing through our brain trust and the various indicators various members follow, there seem to a number of reliable indicators for determining whether the long-term a/k/a Primary Trend of the stock market is bull or bear. For example, Dow Theory has a decent rack record calling Bulls and Bears. But with DT, there's room for interpretation that can find one person saying Bull while another says Bear. Usually that does get resolved over time, but an initial call carries some degree of uncertainty.
In addition to Dow Theory, we follow other Indicators, five or which seem to have a pretty decent track record of signalling the long-term trend of stocks. In our monthly digging around into the various indicators we follow, April turned out to provide a fertile field for five of them. We're looking for these indicators to signal green, yellow, or red. In April, three of them turned red. But that leaves two green. So, on balance, we're left with caution but not a firm indication of primary trend shift from bull to bear.
Overall, then, we find ourselves sitting with an indeterminate trend in bonds and a continued bull trend in stocks.
As for whether you should remain fully invested, invest new money in either asset class, sell down if you're heavily invested in either, that's a whole different story. It really does depend on your specific investment goals and the particular strategy your follow to pursue those goals. Put another way, there's no simple answer here.
On balance, though, having indicators that can signal trends can be helpful, especially when it comes to making longer-term commitments to an asset. Of course, if you're a dyed-in-the-wool buy-and-hold investor, I don't think such indicators provide much value. But if you're not committed to holding through thick and thin, then they can obviously an important component of your investment process.
The stock market and the bond market have been giving mixed signals for a while.
For bonds, it's been a bit more straightforward. For a while we had an upward trend of rising yields; now the trend seems to be down. When the trend was up, we had to consider that the long-term bull market in bonds was over. Now that the trend has been reversed, can we say that the long-term bull is still in place. It's a legitimate question. We can't offer a firm opinion, but a couple of observations may help us grapple with the question.
First, yields never go either straight up or straight down. That's pretty much true for all assets. Stock prices don't go in a straight up or down line for very long. So why should it be any different for bonds?
Second, the 30-year bond yield hit its low yield in July 2016. And that's held, despite the ups and downs. This bolsters the argument of those who believe the bull in bonds is over.
We have no indicators besides the level and direction of yields to reference in considering the long-term trend of the bond market. But that's not true for stocks.
In combing through our brain trust and the various indicators various members follow, there seem to a number of reliable indicators for determining whether the long-term a/k/a Primary Trend of the stock market is bull or bear. For example, Dow Theory has a decent rack record calling Bulls and Bears. But with DT, there's room for interpretation that can find one person saying Bull while another says Bear. Usually that does get resolved over time, but an initial call carries some degree of uncertainty.
In addition to Dow Theory, we follow other Indicators, five or which seem to have a pretty decent track record of signalling the long-term trend of stocks. In our monthly digging around into the various indicators we follow, April turned out to provide a fertile field for five of them. We're looking for these indicators to signal green, yellow, or red. In April, three of them turned red. But that leaves two green. So, on balance, we're left with caution but not a firm indication of primary trend shift from bull to bear.
Overall, then, we find ourselves sitting with an indeterminate trend in bonds and a continued bull trend in stocks.
As for whether you should remain fully invested, invest new money in either asset class, sell down if you're heavily invested in either, that's a whole different story. It really does depend on your specific investment goals and the particular strategy your follow to pursue those goals. Put another way, there's no simple answer here.
On balance, though, having indicators that can signal trends can be helpful, especially when it comes to making longer-term commitments to an asset. Of course, if you're a dyed-in-the-wool buy-and-hold investor, I don't think such indicators provide much value. But if you're not committed to holding through thick and thin, then they can obviously an important component of your investment process.
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