Displaying items by tag: bull market

There is nothing like an international conflict to generate a flight to safe assets, and as much pressure as treasury bond prices have taken in the last year, they are still the world’s premiere safe asset. Inflows post Russia’s invasion of Ukraine have lowered Treasury yields and raised bond prices. Additionally it appears that markets are either dubious of the Fed’s rate hikes or just don’t think it will take as many to get the jobs done. Regardless, many bond ETFs, particularly around treasuries have benefited such as the iShares 7-10 Year Treasury Bond ETF and the iShares 20+ Year Treasury Bond ETF which were up 2.0% and 2.6% respectively in the last week.

Finsum: Treasuries are still the global safe asset and they are still in short supply given the abnormally low levels of U.S. interest rates.

Many investors are fretting over the rising bond yields which are sending their prices tumbling, but this could just be the tip of the iceberg. The aggregate bond index AGG has already fallen 3.9% and that's with the critical 10-year T-bill only rising to a 2% yield. If the 10-year hikes all the way up to its high of 3.25% in 2018 that could be a disaster. With inflation at a 40-year high that's a real possibility and any yield you are getting is all eaten away at. However, if inflation is temporary (caused by supply chains) or Fed pulls breaks fast enough then yields might be maxing out, and bond prices could turn around.

Finsum: Inflation expectations are remarkably low which means that investors are convinced either the Fed will credibly bring inflation down or as supply chains loosen that will bring inflation down. Markets are saying that bond risk is priced in.

Markets are flummoxed as to the variety of risks right now, and it is just unclear how aggressively if at all the Fed and Biden are going to respond to the economic threats. There are two ways to capitalize on the current dip that is hitting your portfolio. The first is tax-loss harvesting; these risks are ones that are more than a month long which could give you the opportunity to repurchase the drops you made in the upcoming months. For those investors who feel adequately equipped in the tax-loss harvesting space, rebalancing is the main tool. That is if your portfolio has lost 10% value inequities with the drops, then up your share to meet the ratios you were at pre-dip. Once stocks have rebounded you can capitalize and re-tool in the opposite direction to maintain the portfolio balance you want in order to serve your risk preferences.

Finsum: Don’t sit during the volatility, but don’t sell off unless you are going to capitalize on the tax efficiency in your portfolio.

Finding a successful stock market predictor is like finding a needle in a haystack, but JPMorgan says they have the indicator, and now is the time to buy in the stock market. The buying guide is when the CBOE Volatility Index grows by over half of its one-month moving average. This has a near bulletproof historical record, only falling during recessions in the last 30 years. Markets gained an average of 9% in the equities in the two quarters after the metric was triggered. Overall, JPMorgan is bullish about the near future in equities and believes there is a lot of runway ahead.

Finsum: Metrics like this can be an anomaly or indicative of something structural underneath, still a recession isn’t out of question with Fed taper tantrum possibilities.

Energy stocks went through a long, rough period leading into 2021. Since 2014, the whole sector has been maligned by low prices and sluggish demand. Renewable energy had stolen a lot of attention and funding and the traditional energy sector languished. However, a unique set of economic circumstances means it may be the right time to get back into energy. Oil prices have been rising strongly (a good inflation hedge), which is a nice catalyst, but almost more importantly, higher interest rates—which are clearly on the horizon—are a big headwind for renewables. Renewable energy projects take a great deal of financing and a long time to set up, which means higher rates increase costs and slow down financings.

FINSUM: Energy seems to be getting back in vogue, that said, the rise of ESG standards in debt financing might mean traditional energy projects also suffer.