No Defense At All

JC Parets
August 28, 2023

With stocks selling off this quarter, the bears are back.

Could you imagine still telling yourself that the rally we got in equities over the past year was a bear market?

What kind of serial killer thinks like that?

A 3-5% correction in some of the major Indexes can cause people to lose their minds.

Heck, you may be wondering yourself if this is the beginning of a huge move lower for stock prices. I certainly am.

Remember, every big move starts with a small one. But not every small move turns into a big one.

That's where Credit Spreads come in. If there is real stress in the market, you're going to see it in credit.

But as stock prices corrected this month, Credit Spreads only got more narrow.

Here's an easy way to view that, comparing the prices of High Yield Bonds vs US Treasury Bonds:

Where is the defensive rotation if stocks are about to collapse?

There's no evidence in the bond market that this is true at all.

And when you keep diving into the intermarket relationships, again, you'll find little to no rotation into defensives:

In addition to tight credit spreads, you're not seeing much flow into Low Volatility stocks or Consumer Staples.

In fact, High Beta and Consumer Discretionary have held in very well.

If we're going to see a major correction in stocks, I believe you're going to start to see these ratios rolling over soon.

You haven't seen that at all.

And remember, this is a logical time in the cycle for stocks to correct. If stocks were NOT correcting, that would actually be very weird.

All of this is perfectly normal.

We discussed it all on last week's LIVE Conference Call. What are we doing about the current market? How are we taking advantage of this higher volatility and new environment?

Premium Members make sure to check it all out here and download the slides.

Let me know what you think!

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