If you're living on this planet, credit is everything—it shapes economies and tells us whether we’re in a "risk-on" or "risk-off" environment.
And there's no better indicator of investor sentiment than the bond market.
With over $140 trillion traded daily, bonds are the largest asset class in the world, spanning all around the globe, from retail investors to governments.
One way we use bonds for information is by analyzing credit spreads as a signal for stress in the market.
Right now, credit spreads are not warning of elevated risk, they are doing just the opposite. Giving bulls the green light.
Credit spreads are tightening and hitting multi-year highs when comparing junk bonds to treasury bonds.
We’ve overlaid the HYG/IEI ratio with small caps to show how similar the two charts look.
Despite the new highs in HYG/IEI, the S&P 600 hasn't broken out just yet.
We think it's only a matter of time until it does.
And nothing thrives in a "risk-on" environment quite like small-cap stocks!
-Allstarcharts Team
Thanks for reading.
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