Leveraged loans fared well as turbulence hit U.S. corporate bonds last week. High yields and Treasury implied volatility favor loans over high yield bonds. Financial conditions bear watching but remain benign.
So far only 28 (6%) of the S&P 500 companies have reported as earnings season kicks into high gear this coming week.
Today's topics include the struggling 60/40 portfolio, Fed keeping the course, blaming the Fed, the stock market's wild swings, restoring U.S. growth, Dimon sees 4% yields, crude oil supply & demand, bank lending, tax payments in the U.S. and the return of subprime mortgages.
U.S. Treasury volatility is again oddly extremely low relative to bursting equity volatility (i.e. VIX). But, the correlation between the risks / volatility behind safe and risk assets is elevated. Investors will struggle to understand a need to alter the traditional portfolio mix of stocks and bonds.
Rising borrowing costs are just one more headwind for consumers that were already turning away from the housing market.
We have argued the Kavanaugh confirmation is the biggest event that will influence the midterm elections. Initially, it was positive for Republicans, motivating dormant Republican voters. This effect appears to be leveling off, but has not yet reversed.
Used car and truck prices declined to a degree only seen a couple times since 1969, but the markets expect the Fed to stick to its planned hikes.
Today's topics include Trump vs the Fed, why this correction is good, the strong economy and rate hikes, the yield curve, leveraged loans, the next recession, long-term investing, the emerging markets may benefit from the U.S. selloff, short-sellers, the price of gold rises and the Fed's balance sheet.
We do not expect Powell to cave to market gyrations unless a protracted drawdown ensues. But, investors are no longer following typical 'risk-off' protocols, instead making a concerted rush for the safety of ultra-short-term U.S. Treasuries and investment grade corporates.
Concerns about the resilience of the Chinese economy in an escalating trade war are not scaring away investors. ETF flows show a rotation among emerging markets away from Latin America and toward Southeast Asia.