We, as investors, could be forgiven for underestimating the potential shifts in the market over the past few weeks. Sure, the equity markets have had a few multi-hundred point jumps and drops, but they’ve largely held constant for the past few months. The intraday volatility and wild swings demonstrate a lack of confidence in bulls or bears. There are key technical barriers (like crossing the 200 point average on a downswing) that are often met with resistance – highlighting the range bound, sideways market we’ve been seeing on television and through our daily statement updates.
Market watchers are spending their time on their best guesses of ongoing trade negotiations (which yields no actionable information since it’s all speculative) or truly inconsequential matters, like the Supreme Court ruling on sports betting sites. Instead, we’ve been cautioning investors, through our quarterly market meetings and previous articles, to regard the equity market as a lagging indicator of economic fundamentals. Given the tightening monetary policy, rising inflation concerns, and massive new borrowing, the bond market is more likely to act as a leading indicator; investors are only barely paying enough attention to the bond markets.
If you watch investment based television (CNBC, Fox News, CNN), ask yourself: what was the last piece you saw on the bond market? Have you been informed that the 10-year treasury yield is climbing to six year highs? Has anyone told you about the momentous selloff which is actively occurring in US treasuries? Bloomberg analysts are expecting the 10-year to end around 3.2% for 2018. That’s not an attractive, flashy, eyeball-grabbing headline – unless you care about borrowing costs, debt management, and hampered growth trajectories… the sort of thing that drives actual economic expansion.