AI
Friday, February 28, 2003 3:33:20 PM
Here's an interesting tidbit from 21st Century's morning briefing.
The bond market is the most interesting gauge of sentiment right now. Bonds had a breakout day to the upside yesterday, in spite of the fact that stocks were also moving up.
The bond and stock markets are not confirming one another. There's no consensus of opinion. Remember, bonds move opposite to their yield, so if we look at a chart of interest rates plotted alongside the S&P 500, we can see how closely these two markets have been moving in sync over the past years.
If we drill down for a closer look, we can see what's happened lately when a divergence of opinion has occurred in these two markets. Lately, when bond traders have been more pessimistic about the world (pushing interest rates down and bonds up -- sorry, I know it's confusing), it has actually heralded a rally for stocks. Yet, when stocks were relatively weaker recently back in January, it spelled further trouble for the stock market.
The up arrows point out the last few times interest rates dipped lower than stocks, relatively-speaking. Each instance brought a quick rally. The down arrow shows where interest rates were relatively stronger, and that was right before the drop down to the Feb 13th low.
This divergence is potentially positive for the stock market. There is certainly a ton of liquidity available to flow back into stocks, if some uncertainty can be cleared up.
But clarity of purpose is not too high on the agenda for the stock market these days, so we can't leap to too many conclusions just yet.
It's still my feeling that the market is rounding the corner into a mid-term uptrend, and without a true, textbook capitulation this uptrend could catch some people by surprise, and engender continuing doubt. There is certainly enough negativity built up to support a pretty good move, all the way back up to SPX 920 or so.
The bond market is the most interesting gauge of sentiment right now. Bonds had a breakout day to the upside yesterday, in spite of the fact that stocks were also moving up.
The bond and stock markets are not confirming one another. There's no consensus of opinion. Remember, bonds move opposite to their yield, so if we look at a chart of interest rates plotted alongside the S&P 500, we can see how closely these two markets have been moving in sync over the past years.
If we drill down for a closer look, we can see what's happened lately when a divergence of opinion has occurred in these two markets. Lately, when bond traders have been more pessimistic about the world (pushing interest rates down and bonds up -- sorry, I know it's confusing), it has actually heralded a rally for stocks. Yet, when stocks were relatively weaker recently back in January, it spelled further trouble for the stock market.
The up arrows point out the last few times interest rates dipped lower than stocks, relatively-speaking. Each instance brought a quick rally. The down arrow shows where interest rates were relatively stronger, and that was right before the drop down to the Feb 13th low.
This divergence is potentially positive for the stock market. There is certainly a ton of liquidity available to flow back into stocks, if some uncertainty can be cleared up.
But clarity of purpose is not too high on the agenda for the stock market these days, so we can't leap to too many conclusions just yet.
It's still my feeling that the market is rounding the corner into a mid-term uptrend, and without a true, textbook capitulation this uptrend could catch some people by surprise, and engender continuing doubt. There is certainly enough negativity built up to support a pretty good move, all the way back up to SPX 920 or so.
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