You can pretend the bond market doesn’t matter all you want.
But I’m here to tell you that this $115 Trillion + market that we call “bonds” is what’s moving things around here.
It starts with credit.
If there is stress in credit, then you’re going to see the implications across markets.
An easy way to see this is to look at the relationship between high yield bonds and treasuries. As this line is declining, those are credit spreads widening.
I don’t see any reason why the S&P500 should have any sort of sustainable rally without a contraction in those spreads.
We’re currently seeing the opposite.
Are we in the type of environment where another 2008 can occur?
The answer is yes.
But what would be the catalyst?
I think it’s this one. I still think it all comes back to the US Dollar:
When the Dollar bottomed in the Spring of 2021, that’s when the list of new 52wk highs peaked, that’s when the Nasdaq A-D line peaked, that’s when Biotech peaked, Chinese Internet, ARKK Funds and everyone had a SPAC.
It’s been a slow deterioration and 16-month+ Bear Market for stocks.
And it’s come with a stronger Dollar.
If you recall, that beautiful period of euphoria after the COVID bottom came with a falling Dollar.
I think that’s what it will take to make money from the long side of most stocks for the rest of the year.
So the first thing we want to do is identify what type of market environment we’re in. And THEN we can decide which tools and strategies are best for that type of market.
That’s what’s on my mind.
What’s on yours?