The Bond Market Sticks to its Weaker Economy Message
CAMS Weekly View from the Corner – Week ending 6/14/2019
June 17, 2019
In the previous four weeks of trading the bond market has sent an on-going message that a weaker economy is upon us and that it will continue. To be certain, at this stage, it is not screaming recession but it is sticking to its message of a softer economy than what we have been experiencing.
We have intermittently shared this message here in our Weekly Views over the last few months. We have shared this more frequently of late and will offer another observation here today in light of its important economic message and the follow-on impact in the stock market.
Our central observation point within said bond market is the 10 Year Treasury bond. If you are a consistent reader of these Weekly Views you will most likely recognize the chart below.
The above chart has been narrated throughout since we first shared it back in the fall of 2018. The lower right portion is now our focus in that it was only a few weeks ago we shared this with a general question of whether a new low was coming soon.
Since then we updated that in fact another new low did indeed come.
Today we focus on the bottom right corner of the chart. The significance is in the subtlety of the trading behavior. That is, this 10 Year Treasury bond made a couple of attempts to move higher and failed to do so. This underlines the bond market message that this lower low was not a fluke if you will. It is sticking to its message of a softer economy.
The stock market seems to be agreeing with the message in that the strongest areas within the stock market continue to be defensive/cautious areas. Utilities and Consumer Staples are two sectors that have held up well. More specifically, within these areas industries such as Food related and more simply soap products have been the better performers.
While the stock market has had a move up toward previous highs it still has not erased the month long pullback preceding said move. This is a very interesting place for the stock market. That is, the bond market is sending a weaker economy message while the stock market itself is chiming in via the areas within it that are doing best.
If the economy “hangs in there” and stays out of recession we could be looking at a stock market that holds itself together while doing so with a focus on its most cautious areas – think Utilities and Consumer Staples such as we have seen of late.
Importantly, if this continues this will not be a statement of strength from the markets but rather caution. From there market direction could get dicey especially if the economy becomes more concerning. We continue to watch these market interactions and will share as they develop.
I wish you well…
Director, Market Research & Portfolio Analysis
Portfolio Manager, CAMS Spectrum Portfolio
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