During the last few decades, bonds have developed a reputation as being one of the safest asset classes to invest in. This is unfortunate because that false sense of security is going to take a large bite out of the retirement accounts and portfolios of many investors.
In last week's article I elaborated on why it's important to allow the economic backdrop to guide us when price action becomes erratic. Today, I thought we would take a short tour of the economy to see how some of the more important elements are trending.
As you're well aware, GDP for the second quarter came in at 4.2%. That represents an uptick from the growth rates we saw over the last couple of years, and is the fastest annualized rate of growth since 2014.
If you've ever caravanned with others on a drive or hike, then you know that sometimes different parties move at different speeds. The inevitable result is that the lead party has to slow down, or stop and wait for the others to catch up.
If you happen to be climbing Mount Everest, or trekking across the Pacific Coast Trail, then these "pauses" to regroup can be a lifesaver. They allow everyone to check in and verify that all is well before the climb continues.
What's the best thing to talk about when the market is firing on all cylinders? Recessions, of course. Rather than getting caught up in the excitement of Nasdaq 8,000, which we reached today, or the fact that the S&P has finally broken out to new highs, let's ignore the crowd and stay focused. We have work to do.
Today we're going to drill down into the yield curve once again, because while this incredibly accurate recession predictor has been around for decades, its popularity and overall presence in the minds of investors seems to have increased recently.
For the last few months, we've been commenting on the "stealth" nature of this bull market. While most investor attention has been focused on the major averages, which have been laying low, many of the junior indexes have taken out their high-water marks. That left us with the impression that the majors would soon follow.
The list of indexes that have climbed to new highs following the February swoon is quite exhaustive.