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Bond Market Curiosity

CAMS Weekly View from the Corner – Week ending 7/24/2020

July 27, 2020

In recent weeks the stock market at large has been displaying some notable resiliency to downside attempts.  The resiliency turned into upside price action that has offered an improving stock market.

Seemingly you could throw darts blindfolded at a “societal issue” dartboard and hit something relevant to current day.  With this, casual stock market observing would suggest a stock market decline should be imminent if had not already begun weeks ago in light of said backdrop.

As we offered in our previous edition, historically it is as though markets exist to surprise the most people.  This may be yet again one of those times – maybe.

One thing is certain throughout the market landscape:  Being flexible is in order in light of the various cross-currents that have existed and continue to present themselves.

When market clarity becomes especially clouded it becomes particularly helpful to dial into various, unrelated markets.  This is known as inter-market analysis.

The point to this is to glean any messages that may be offered through different markets.

One of our favorite inter-market messages that proved quite helpful back in the January/February timeframe has too seemingly become uncertain – go figure.

Link For Sourced Chart:

Collective market participants often use Long-term Treasury bonds as a “flight-to-safety” vehicle when markets at large become concerning.  The bond market in particular is looked at as a very smart market and many times will identify issues on the horizon before other markets (such as the stock market) realize there are forward concerns.

Markets share their message through price behavior and the trends that develop through said behavior.

The above chart begins in early April in order to zero in on the most recent developments of two different markets.

The top line is the S&P 500 while the bottom line depicts the price behavior of the Long-term Treasury bond market.  The corresponding trend of each market is our focal point here.

Viewing the chart from left-to-right quickly tells the story.  That is, the red arrows initially identify opposite trends of these two markets which then is followed by a no-trend period identified by the rectangle boxes.  It is from there – early July – where things begin to get odd.  These two markets have trended upward together.

In-house we often say that somebody is wrong here.

The stock market at large has displayed a wealth of constructiveness inside itself the previous couple of weeks in particular.

As long as a flight-to-safety vehicle such as the Long-term Treasury bond market is being this constructive it is important to be vigilant not complacent.  This is why we are sharing this inter-market view in today’s edition.

As we stand here with Friday’s close we do see some weakening in the stock market but nothing to the point of the stock market suggesting imminent problems.

Under the “sign of the times” banner if you will, we all must be open minded to the potential for an abrupt reversal.  The above inter-market confusion offers just that, confusion, which underlines the need for vigilance.

Be sure you are invested to your risk tolerance – this is not a time for complacency.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio


H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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