Italian election results did not sway markets for long. Indices rallied back with the US market having an early morning rally. The Euro was down over a percent after the results to stage a rebound to 70 bps higher on the day. What does this all mean in market terms? Bad news, or the perception of bad news, does not last in the markets long and is seen as an opportunity to buy. With the Fed meeting a week away and markets expecting a rate hike, it is not hard to see more upside in the month ahead.
It is hard to predict where market changing sentiment will come from. One place to look out for danger is in the bond market. With yields increasing on treasuries and corporates, the competition to stocks is increasing. The melt up in the stock market is keeping equities attractive for the time being but any lateral movement or downside could be an opportunity to put gains into cheaper bonds (giving a higher yield). Seeing yields start to level and capital go bargain hunting could be a sign that investors feel bonds have met the inflation expectations of the future. Combine the higher yields will make it harder for stock to borrow and make their future earnings in the future less, you will have a good trade-off in stocks to bonds. The spring is being coiled for bonds to have a rebound after these losses. All we are missing is the right level and a push from an external factor to set things in motion.
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June 2020
CategoriesAll Chinese Debt Commodities European Disunity Inflation Policy US Earnings |