Key Takeaway: With pessimism at levels that elicit comparisons to the financial crisis, conditions are set for a meaningful bounce in equities. But at this point, the similarities appear closer to what prevailed in the first half of 2008 than what was seen as stocks moved toward their final lows in March 2009. With the NYSE and NASDAQ still seeing more new lows than new highs (31 weeks and counting) and breadth thrusts conspicuously absent, the backdrop offers little about which to get excited. Recent leaders are experiencing newfound weakness and new leaders are more defensive in nature. Investors have endured a succession of failed rallies in recent months, but that patience may wear thin. The burden of proof is on the bulls. Rally attempts that increase hope but offer little strength would fit the pattern seen during the financial crisis
Sentiment Report Chart of the Week: Mixed Messages From Bonds
It’s been a rough first half for bonds. For now at least, Treasury yields have stopped crashing. When Treasury yields stopped rising and started to move lower in the first half of 2021, investor moods improved and risk appetites increased. Back then, however, lower Treasury yields were accompanied by narrowing credit spreads. Now, while Treasury yields have pulled back from their highest levels in over a decade, High Yield spreads are climbing to levels not seen since the COVID crisis. Junk bond ETF’s are trading at their lowest levels in more than two years. In this scenario, lower Treasury yields might not be a green light for growth areas of the market, but a move to safety that could include a re-evaluation of overall equity exposure (of which households have historically high levels) and/or an increased preference for defensive areas of the market.
