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Is The Smartest Market Trying to Tell us Something?

CAMS Weekly View from the Corner – Week ending 3/29/2019

April 1, 2019

In today’s View we are calling specific attention to the 10 Year Treasury bond.  This is a crucial benchmark interest rate that impacts the economy broadly.

The 10 Year Treasury Bond rate is a benchmark interest rate that plays into many markets and impacts other interest rates such as auto loans, credit cards, student loans and mortgage rates to name a few.

The bond market is often considered to be the smartest market in light of its hyper-vigilant focus on all things economic.  It is not unusual for the bond market to send a message well before other markets only to see other markets chime in at a later time.

If you are a consistent reader of these Weekly Views you may recognize our focus on this 10 Year Treasury bond being we had shared its message in a couple of editions through the fall season of 2018.

To get perspective of the current day view we offer the chart we had last shared of this 10 Year Treasury bond back in early December which is directly below.

$TNX - 4.1.19

As the narration points reflect, bond market participants became convinced the economy was “on fire” and with this pushed interest rates nearly straight upward.  They then quickly turned polar opposite and became consistent in their message that the economy was indeed going to weaken as 2018 was coming to a close.

Directly below is an updated version of the above chart.

Click For Larger View:

As depicted, collective bond market participants have pushed this interest rate even lower in recent weeks.  As an aside, they do this by purchasing bonds which places upward pressure on bond prices and in so doing downward pressure on interest rates.

Bond Market Message with a Twist:

Interestingly, the broader bond market is not in sync with the above conclusion of an imminently weakening economy.  Specifically, higher risk corporate bonds which are categorized as “High Yield” bonds do not see an economic issue at all.

This mixed message differs significantly from its broader message in late 2018.  At that time the entire bond market was offering – if not screaming – economic concerns.  With this the stock market reacted violently to the downside to conclude 2018.

The significance to the stock market is the need of consistent economic growth to lay a backdrop for companies to be able to increase their sales and profits.  Take away the economic growth and our highly valued stock market can display issues quickly.

Currently, via the mixed messages throughout markets, it seems they are all looking at each other interested in what the other one sees if you will.  As this process unfolds a clearer message will evolve and that message will impact all markets accordingly.  We will share as these market messages unfold.

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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