Bond Yields Spoil The Market Party

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[Chart courtesy of]

  1. Moving the markets

The S&P 500 is still hovering near its highest level since August, but it slipped a bit today. Maybe the market realized that its artificial intelligence stocks can’t keep the party going forever.

After all, we have seen 13 months of declining leading indicators, and the Fed’s hawkish policy will likely bite us in the future. Liquidity issues will become a big problem, especially when the government needs to borrow an estimated $1 trillion to fill its empty coffers. Who will buy all that new debt? The Fed may have to step in and print more money.

Some assets went up, some went down, leaving many investors confused and frustrated. Billionaire hedge fund manager Stan Druckenmiller summed it up well:  

This is the most complicated non-roadmap, unanalyzable situation I’ve ever seen in terms of having a lot of confidence in an economic prediction going forward… I just don’t see a fat pitch right now.

And then he added:

Our central case is there’s more shoes to drop, particularly in addition to the asset markets economically.

Ouch. That sounds bad. And it shows. The Nasdaq had its worst day since mid-April, while the Russell 2000 (small caps) outperformed it by the most since March 2021.

Regional banks kept rising, while Goldman Sachs tried to convince us that everything would be fine, and we would have a “soft landing”. Bond yields soared higher with the 10-year jumping 12 basis points but stopping at the 3.8% resistance level.

The US Dollar had a wild ride but ended flat. Gold was not so lucky and gave back Monday’s gains as bond yields hurt its appeal. So, what should we do in this bubble? Druckenmiller has some advice:

There are definitely lessons to be learned [from the Dot Com bubble]. Don’t get emotional, don’t get crazy.

Sounds reasonable. But will we listen? Or will we repeat history?

  1. “Buy” Cycle Suggestions

The current Buy cycle began on 12/1/2022, and I gave you some ETF tips based on my StatSheet back then. But if you joined me later, you might want to check out the latest StatSheet, which I update and post every Thursday at 6:30 pm PST.

You should also think about how much risk you can handle when picking your ETFs. If you are more cautious, you might want to go for the ones in the middle of the M-Index rankings. And if you don’t want to go all in, you can start with a 33% exposure and see how it goes.

We are in a crazy time, with the economy going downhill and some earnings taking a hit. That will eventually drag down stock prices too. So, in my advisor’s practice, we are looking for some value, growth and dividend ETFs that can weather the storm. And of course, gold is always a good friend.

Whatever you invest in, don’t forget to use a trailing sell stop of 8-12% to protect yourself from big losses.

  1. Trend Tracking Indexes (TTIs)

Our Domestic Trend Tracking Index (TTI) went against the market trend and rose further into the bullish zone, while its international counterpart stayed the same. If this level holds for a while, I will consider increasing our exposure slightly.

This is how we closed 06/07/2023:

Domestic TTI: +2.40% above its M/A (prior close +1.66%)—Buy signal effective 12/1/2022.

International TTI: +6.03% above its M/A (prior close +6.03%)—Buy signal effective 12/1/2022.

All linked charts above are courtesy of Bloomberg via ZeroHedge.

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