From the Desk of Ian Culley @IanCulley
The Nasdaq is ripping to new all-time highs. NVIDIA’s market cap is surpassing the three-trillion-dollar mark. And US T-bonds are registering another buy signal.
But the market’s still a mess.
Just look at yesterday’s intraday reversal—a bullish reaction to inflation data in the morning, followed by a bearish reaction to the FOMC meeting in the afternoon. Investors are still trying to make sense of the mid-week hoopla.
Friday’s close (the most important data point of the week) will reveal critical information regarding market conviction heading into the weekend.
Meanwhile, you can track high-yield bonds for risk-on confirmation.
Check out the HY Bond ETF $HYG overlaid with the high beta-versus-low volatility ratio (using the $SPHB and $SPLV ETFs):
These two charts are carbon copies over the trailing 52 weeks because HYG is a risk asset.
When investors feel comfortable buying bonds that could end up a zero, riskier stocks with a higher beta outperform their safer alternatives.
If the Nasdaq’s new all-time highs are the real deal, HYG should break out of its six-month consolidation and print a new year-to-date high:
A decisive break above 78 will confirm the risk-on stock market rally.
Of course, you could also buy HYG on a decisive upside resolution. It’s not my favorite trade – but you could define risk at the year-to-date highs.
I prefer to follow Jeff deGraaf’s advice from today’s episode of The Morning Show, which is to “...look to buy oversold conditions in primary uptrends.”
As I write, the team is putting together a list of names that fit that description, so keep your eyes peeled.
And don’t lose sight of the bond market, especially high-yield bonds.
What do you think about the new all-time highs in the Nasdaq and S&P 500?
Are you sitting on the sidelines?
Or, are you getting involved?
–Ian
Countdown to FOMC
Following yesterday's CPI data and FOMC meeting, the market is repricing the probability of the first 25-basis-point rate cut for the September meeting.
Here are the target rate probabilities based on fed funds futures:
Click the table to enlarge the view.
This data is from the CME FedWatch Tool as of June 13, 2024.
Thanks for reading.
And as always, be sure to download this week’s Bond Report!
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