The stock market finally got hit last with its first heavy round of selling since early February. The Dow Industrials gave up its gains for the year. It had been lagging the other market averages like the S&P 500 and Nasdaq Composite all year.
So far, this does not appear to have shaken the confidence of most investors but as I discuss in the What to Watch section, investors are likely to see further selling before we get another low risk buying opportunity.
There seems to be a more important shift going on in the market that would have more important implications for most investors. In last week?s column, I noted that the yields on junk bonds had broken their downtrend (see chart) and, a week ago, $4.8 billion was yanked out of high yield bond funds.
There were signs that the bond market may have bottomed last week as I recommended two inverse bond ETFs. It will take several weeks, if not more, before a bottom is confirmed but the timing dovetails nicely with the generally stronger economic data.
Chasing yields has been the best and most popular strategy for the first half of the year. Recent data indicates that Chinese buying has played a large role in the sharp decline in the 10-Year T-Note yields this year.
|