I've been waiting for today to arrive as the Q2 GDP print is in and was ugly as expected. The awful number reported (a -32.9% collapse) was expected but I'm looking for some "trigger" that might change the market mood and I've suspected the GDP number could be it. Seeing the worst GDP decline on record, even worse than during The Great Depression, might be a wake up call for the majority of people that never look at economic data, despite the fact it was "expected."
In support of that suspicion is the 2nd major event I was waiting for: a breakdown in treasury yields. The last few months 10 year treasury yields have NOT rallied with stocks creating this huge disconnect between a euphoric equity market and a glum bond market--and again this is something the average Joe doesn't watch. Today the yields on the 10 year treasury broke down from the support we've seen holding for months (shown on the chart in blue). It even broke below the spike down that happened on April 21. Yields are breaking lows, bond values are rallying, and this is exactly the opposite of what should happen if the stock market rally were on solid footing. Unless yields reverse and go back up, I'm calling this an early indicator that the stock euphoria has been wrong and the top could be in.
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Equities are making a sharp intraday rebound along with a rapid decline in volitility as we've seen repeatedly for months, but treasuries are not impressed and remain below support. The close today (and the close of the week tomorrow) should be interesting.
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New lows in 10 Year Treasury yields today after a run back up to retest the breakout line yesterday. So yields continue to fall... but whatever tops the equity uptrend doesn't seem to be the Q2 GDP print or the treasury yield breakdown. So equity prices diverging from pretty much everything else just continues on.
I don't know what tops the market, but we're less than 100 points on the S&P 500 from the top of the multi-year broadening top/megaphone I posted previously. I'll drop an update on that chart as well.
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The last two days have had a big move back over the blue support line in the chart. So I'm back to watching and waiting for a significant break lower in yields.
I don't believe yields will go significantly higher... the Fed will prevent that. We're seeing a move higher because there hasn't been much QE lately and Fed assets are actually falling. But that will eventually change. Higher yields will destroy any recovery and the Fed will eventually do what it takes to bring rates back down.
Strange times, indeed.
I agree with your logic. I'm long gold, silver, BTC. Those seem to be the only true safe havens. Bonds are just...unattractive, with negative actual yields.
MystryBox
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@bas9940, bonds are attractive because yields are falling. As yields fall bond values go up--so yield returns are low but you make a capital gain as bond prices increase. When you think about it that way, bonds have outperformed the equity market for a long time as yields have been on a decline for decades. Eventually bonds will be a bad investment, but I think nominal yields will go negative before that happens (and at that point you'll want to own precious metals as you say).
I'm long precious metals with a long term outlook, but in the short term I expect they will fall with the market when the equity market eventually turns back down. I'm also bullish on crypto, which could also fall with equities, but I think crypto has the best chance to actually go up as the market goes down. We'll see.
bas9940
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@MystryBox, understand falling yields = increasing value, but I feel like nominal yields won't go negative any time soon...but maybe they will.
MystryBox
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@bas9940, the Fed is buying bonds like crazy... so I think yields will keep falling (raising value of bonds).
liberatedstocktrader
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Well spotted, keep us posted on developments, this is a hot topic.
I agree with your logic. I'm long gold, silver, BTC. Those seem to be the only true safe havens. Bonds are just...unattractive, with negative actual yields.