The September Issue of the ETF Investor Guide is AVAILABLE NOW!
Links to the September Data Files have been posted below.
Market Perspective: Bonds Rewarding Conservative Investors
The largest technology stocks helped float the Nasdaq to an increase of 0.57 percent last month, while worries about the banking system amid rising rates helped sink the Russell 2000 Index 2.57 percent. The 10-year Treasury yield was poised for a major bullish breakout or an important double top heading into September, but it’s left trades in limbo by chopping sideways. At the same time, energy and inflation-related ETFs have surged in momentum, with some energy sector indexes climbing to new all-time highs. The market is contemplating whether inflation is really finished, with crude oil up nearly 40 percent since June, but the market is still being led by tech stocks. Economic growth looks solid for the quarter, with all three Federal Reserve banks that have forecasting models boosting their estimates.
If the top-10 Nasdaq stocks were their own index, they would already be at a new all-time high this year. Meanwhile, the Russell 2000 Index is still 25 percent below its 2021 high and only about 8 percent above its 2022 low. The difference comes mainly from a combination of three factors. First, investors historically view smaller-cap stocks as riskier and therefore sell them during periods of higher volatility. Second, many investors are funneling cash on autopilot, most of it into passive market-capitalization-weighted funds such as the S&P 500 Index. Third, the largest stocks are currently in the technology sector, helping boost indexes with hefty tech exposure such as the Nasdaq.
At some point, investors will buy bonds because the yields will be too enticing, but that point may not have been reached yet. Money is flowing into bonds, but not enough to offset sellers and newly issued bonds. The 10-year Treasury yield sits at 4.3 percent, but a breakout might carry it to 5.5 percent or 6.0 percent. A strict economic analysis argues bonds are well overdue for a rally given the slide in inflation readings and various data points such as the low manufacturing PMIs in key export economies such as China and Germany. Bonds are heavily shorted in the futures market as well. If bonds rally, a massive short squeeze could propel bonds and significantly lower yields…Continue Reading