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Posts Tagged ‘stock swoon’

Slow-Moving Trainwreck Over

September 22nd, 2023 by Kurt L. Smith

Today, September 21st marks the official end of the bond market correction that began last fall. Bloomberg’s US Generic Government thirty-year yield index hit 4.57% (all yield and prices per Bloomberg), the highest since 2011. Their ten-year index hit 4.50%, the highest since 2007. The two-year version of the index hit 5.20%, the highest since 2006, and within range of 5.35%, which would be the highest since 2000. The treasury market had been within spitting distance of this breakdown for weeks, as followed in previous letters.

The slow-moving portion of the financial markets, however, belongs to stocks, which are currently trading at the same levels as over two years ago (pick whichever index you like; the story is the same). The bullishness we have witnessed over the past many months has not resulted in higher prices, but instead lower ones. As the reality sets in that the correction in prices since last fall is slipping away (the slow-moving train wreck), expect the price plunge to accelerate as stocks join their highly correlated bond brethren in the continuation of the bear market.

Real economic damage has occurred already. My favorite bellwether US treasury bond, the 1.25% of May 15, 2050, traded at a new low of 48.5 today after trading over 102 three years ago on August 6, 2020. With treasuries of all maturities trading at twelve-plus-year lows, it appears that almost all bond portfolios are underwater, with those portfolios of longer duration significantly underwater. The last time long term bond prices were this low, last October, First Republic Bank, Silicon Valley Bank and Signature Bank collapsed months later. These were three of the four largest US bank collapses in history.

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Now It Gets Interesting

February 17th, 2022 by Kurt L. Smith

Long-term investors, I mean old investors, have experienced market reversals. As night becomes day, market selloffs lead to new, higher prices. This law of nature does not apply to markets, though one’s experience tells one otherwise.

Over the last 40 years we have seen downdrafts leading to new highs. You remember the dates: 1987, 2000, 2007, and lately, 2020. What you may not be aware of is the same dates also saw similar action in bonds. The long-term bull market for stocks was mirrored by bonds. Bond and stock performance marched ever upward, together…until they did not.

I have worked hard to let you know the bull market in bonds is over. Yields traded at such a next-to-nothing interest rate in March 2020 resulting in record high bond prices. Compared to the double-digit yields of the early 1980s, which equated to record low bond prices, I believe the bond market has completed its long bull market journey. The bond bull market is over, and you should not own bond mutual funds.

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Prepared?

March 5th, 2020 by Kurt L. Smith

From record high to worst week since the financial crisis in October 2008, stocks ended thirty-plus years of bull in dramatic fashion. The top bull in the better than best of recent asset pricing is taking the leadership role in the great deflate.

From a high of 29,568 on February 12 to an end of month low of 24,681, the Dow Jones Industrial Average has lost over 4,000 points with 3,600 of it in one week (source: Bloomberg). This is not your normal pull back. This is not the buy the dip (one more time!). This is the end we have been talking about since November 2017 in my letter, Top of Tops. In that letter I noted 23,500 as the all-time high turning point for stocks. The extra run since then was a bonus.

You all know I have been writing about asset prices being at the end of something. From the depths of the financial crisis in March 2009 to February 2020, it was quite a ride. A ride I believed would be over (in November 2017) but continued through Groundhog Day (after Groundhog Day) 2020.

Consequential? Unbelievably so. This isn’t even the worst part. From my point of view stock investors “haven’t lost anything” as they are still ahead of November 2017. No, the worst part is ahead of us because it involves the bond market.

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Sell Bonds

September 12th, 2019 by Kurt L. Smith

The Select ApproachTM believes the bond market correction of the past nine months is now over.

Last month we talked about the giddiness of bonds and that giddiness delivered bonds onto the front pages of the major dailies. The New York Times on August 28th probably marked the high prices with this headline “While Wall St. Talks of a Recession, Bond Investors Make a Killing. You should have bought bonds. They’re going great.”

The NY Times also included a nice chart of year to date returns. “Thirty year Treasury bond +26.4%, Long-term bonds +23.5%, Investment-grade corporates +14.1% and Ten Year Treasury notes +12.6%.” Indeed, stellar returns essentially describes the bond market correction of the past nine months.

In order to reap the rewards of this year’s bond market moves, one must sell. Not your Select ApproachTM bonds, but everything else. This market move was a trade, and a short-term one at that, and now it is over. The bond market is in a long-term bear market since 2012. Prices move down (yields rise) setting the trend and in order for the market to continue to lower prices, a correction needs to occur. Ebb and flow happens but the important part is the direction of the trend for bond prices is lower.

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Markets Move, Not In A Straight Line

January 3rd, 2019 by Kurt L. Smith

If the stock market is reflective of social mood, and I believe it is, then we have experienced quite a mood change in the fourth quarter of 2018. From all-time stock market highs to the lows of the year, to what may be the worst December stock market since the Great Depression, the market, and mood, has changed.

Your mood may have changed as no one likes to see gains evaporate, particularly at historic clips. Markets, as I have preached for years, do go up and down after all, so this must be a part of it. Yes they do, but ups and downs do not reflect the true risk with this market.

The reason I find it important to forecast and call changes in trend is because with each later stage of the thirty-plus year (if not ninety year) bull market, I see the risks inherent in subsequent turns as much greater than we have previously experienced. We therefore should not be surprised when the unusual or extreme occurs because, like prior downturns, we are aware the surprising will probably occur.  Or in this case, take December as an example. (more…)

Beginning To Feel It

December 4th, 2018 by Kurt L. Smith

Compared to this time last year, I am willing to bet you are feeling a little less certain about your financial situation. Rather than reading about “global synchronized growth” you are now primarily concerned about U.S. growth or just growth period. And looking at your stock portfolio you may be wondering just what did happen, or not happen, in 2018.

It was this certainty of beliefs that led me in late 2017 to call a Top of Tops in November 2017, not only for stocks but also vis-à-vis bonds at the time. While the timing turned out to be premature, as stocks widely peaked a couple of months later, it was sentiment that led to the forecast.

Some of you may wish that you had lighted upon stocks prior to 2018. Volatility, which seemed to become extinct in recent years, reared its ugly head as a reminder that investments are not a perpetual growth machine; investments are part of markets and their prices will behave accordingly.

This is important to remember as my forecast of a trend change in stock prices has now become an actual trend change in stock prices. Together with the 2012 trend change in the direction of interest rates and you now face the double whammy of bear market trends in both stocks and bonds. (more…)

Stocks Are Down Ten Percent, Now What?

October 31st, 2018 by Kurt L. Smith

This past week the S&P 500 traded ten percent below its all-time high set just a few weeks earlier on September 21st. This letter also marks the one year anniversary of my letter entitled Top of Tops. Why wait until year-end to write the year in review when an anniversary will do.

Last November we were well into the Bond Bear Market that began in 2012, yet few talked about it or even noticed. We have been keeping score using the US Treasury ten year note which hit 2.01% on September 8th, 2017, 2.47% a few weeks later on October 27th and traded October 9, 2018 at 3.26%. Indeed bond yields are running higher, sending longer-term bond prices ever lower.

The bellwether thirty year US Treasury bond posted a low of 2.63% September 8th, 2017 and recently traded at 3.44% on October 9, 2018. A year later we have seen significantly more analysts, pundits and investors join the bond market bear camp but as I said last month, interest rates are rising so slowly (so far)  as to only minimally affect overall fixed income investment returns. (more…)

Shot Across The Bow

March 1st, 2018 by Kurt L. Smith

While bonds continued their slow, steady march to higher yields (and lower prices), the stock market corrected. One thousand Dow points lost in just over an hour. Stock indexes swooned, even falling below the levels I marked in my November Letter as the Top of Tops.

I am sure you didn’t sell in November, just as I am sure you didn’t sell 3,000 points higher at 26,500 in January. You are not conditioned to sell; you are conditioned to buy the dips. We have enjoyed thirty-plus years of bull market reinforcement, not to mention every bit of economic, scholarly and sage advice written to further reinforce stocks for the long run.

Last month’s letter predicts the bond crash of 2018. Despite the stock market’s gyrations of late, the bond market neither soared or crashed.  The bond market continues to deteriorate, yet at a seemingly glacial pace over the past several months. Ten year US Treasury notes were 2.01% on September 2nd and touched 2.95% in February (Bloomberg) while activity in municipal bond markets remain somewhat muted. Overall, new higher yields for US Treasury notes and bonds, furthering the bond bear market but no crash, yet. (more…)

Not The Same As The Old Year

January 11th, 2018 by Kurt L. Smith

Happy 2018 to you and yours! I hope 2017 was a good year for you and may 2018 be wonderful.

One always tries to keep the wind at your back and this appears to be the consensus with investors. Optimism is extremely high and the business press (and stock market performance) reflects this sentiment.

This is the definition of trend. To be the trend it must show general tendency AND it needs to continue long enough to get noticed. The trend is your friend because you are an investor, not a trader. The trend can provide you sound grounding to make decisions as well as a framework for what may come.

These past several months we have discussed the next move in the continuing trend for bonds as well as a change in the trend for stocks. Bonds hit their high in price (low in yield) on September 8th. Since then, rates have slowly risen, while I believed they would move up faster. The ten year US Treasury was 2.01% in September, a 2.47% high in November and a new 2.50% high in December. Two year treasuries were 1.25% in September, 1.78% higher in November and a new 1.92% high in December and 1.97% this past week.

The reason I continue to write about bond yields is because it is important to know the trend. I marked the end of the bond bull market back in 2012. Buyers of long-term bonds back in 2012 invested in low yields, their current bond value is less to boot as rates have risen and bond prices have fallen. (more…)

We Have Top Men Working On It

February 10th, 2016 by Kurt L. Smith

In late January the Federal Reserve’s Open Market Committee voted to do nothing.  Unfortunately they had to say something and it was that something that reminded me “we have top men working on it.”  Here the top man is a woman, Chairman Janet Yellen.

The Fed’s luster was destined to pale from the days in 2000 when Chairman Alan Greenspan was dubbed Maestro for his deft maneuverings.  Chairman Ben Bernanke was Time Magazine’s Person of the Year in 2009, having saved the world, or at least us, from certain financial ruin.

So from Chairman Yellen we ask “what have you done for us lately?”  Stocks swooned in August but recovered by December only to have the Federal Reserve vote to hike interest rates for the first time in ten years.  Now that stocks have swooned again to begin 2016 we find the Fed to be hesitant in its plans to normalize, I mean raise, short-term interest rates. (more…)

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