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Stocks and Junk Bonds: “This Divergence Appears Meaningful”

June 28, 2023 by Leave a Comment

The trends of the junk bond and stock markets tend to be correlated.

The reason why is that junk bonds and stocks are closely affiliated in the pecking order of creditors in case of default. The rank of junk bonds is only slightly higher than equities because debt involves a contract.

Given these two markets are usually correlated, it’s worth paying attention when a divergence takes place. Indeed, a divergence is in the works now. In other words, while stocks have been holding up, the price of junk bonds have been trending lower for much of the year.

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Corporate Bonds: “The Next Shoe to Drop”?

April 26, 2023 by Leave a Comment

A distinct Head and Shoulders pattern exists where the neckline has been broken over the last few days. The corporate bond market has held in reasonably well over the last year, but we fully expect this sector to be the next shoe to drop.

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Why the “60 / 40 Balance” May Be Hazardous to Your Portfolio

February 17, 2022 by Leave a Comment

Financial advisors have long advocated a mix of 60% stocks / 40% bonds to cushion portfolios from downturns in the stock market. The thinking is that stocks go up in the long-term, hence, that’s where investors should allocate the most. At the same time, advisors acknowledge that stock prices can sometimes go down so “less risky” bonds will provide at least some protection. The problem with this investment strategy is that bonds can go into bear markets too. Moreover, they can do so at the same time as stocks. Let’s review what happened during the Great Depression of the early 1930s.

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Bond Market: “When Investors Should Worry”

November 17, 2020 by Leave a Comment

You may recall hearing a lot about “credit default swaps” during the 2007-2009 financial crisis. As a reminder, a CDS is similar to an insurance contract, providing a bond investor with protection against a default.
In the past several months, the cost of that protection has fallen dramatically. The November Elliott Wave Financial Forecast, a monthly publication which provides an analysis of major U.S. financial markets, showed this chart and said:

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Junk Bonds: 2 “Golden” Junctures

March 28, 2020 by Leave a Comment

The Golden Ratio — 1.618 or .618 — is ubiquitous throughout nature. You’ll find this mathematical proportion in the shapes of galaxies, sea horses, pine cones, the arrangement of seeds on a sunflower head, and numerous other natural phenomena… including the chart patterns of financial markets.

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Bonds Continue To Flash Warning Signs For Stocks

February 8, 2016 by Leave a Comment

When investors are fearful, common sense tells us demand picks up for more conservative assets, which is exactly what happened early Monday morning. When investors are very pessimistic and fearful, return of principal becomes highly important. Therefore, when fear increases we would expect to see defensive bonds outperform growth-oriented stocks.

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Floating-Rate Funds Poised to Profit as Interest Rates Rise

September 11, 2014 by Leave a Comment

Typically, as I’m sure you are aware interest rates and bond prices have an inverse relationship. That means when interest rates rise bond prices fall. But in today’s article we will look at a different type of bond fund that avoids that type of risk.

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