The financial markets have been telling a fragmented story ever since the beginning of 2019, but that appears to be changing. Over the past month, the messages coming from stock and bond markets have begun to coalesce in a manner that unfortunately, will likely leave a bearish taste in your mouth.
Article Category: Bonds
Earnings season officially kicks off this week, so let’s begin with a quick look at how expectations have evolved, and what it could mean for stock prices moving forward. The first thing to note is that S&P 500 earnings are expected to decline for the first time since Q2 of 2016.
There have been quite a few interesting developments over this past week, so we have a lot to cover. I want to begin by drawing your attention to the divergence between stock prices and bond yields. We discussed this back on March 5th, but since then, things have deteriorated even further.
We’ve been hyper-focused on the equity market over the past few months so I thought we’d expand our horizons today and look at a few other markets, particularly the bond market. This discussion should dovetail nicely with recent central bank comments suggesting an alteration of their inflation policy framework – something that could have large consequences down road.
Some of the strongest moves in the stock market often come when no one is expecting them. After a vicious start to the year – which almost triggered a Dow Theory sell signal, the market found itself in a renewed uptrend beginning in early April.
Since then, the S&P 500 has been climbing steadily inside a well defined upward sloping channel. We can see this in the chart below, along with some key support levels.