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?
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:
