The Stock and Bond Markets are Moving in Opposite Directions
Jun 24, 2009
Posted by Jody Eisenman | Filed under Uncategorized
The stock market has now been drifting lower for most of this month. The S and P started ended on June 1 at almost 943. After peaking on June 12 at 946, it has had a hard time getting through the 950 level, and has now drifted down to 895. There is no real news to account for this other than an absence of buyers and profit taking. Volume has been on the light side, averaging around 5 billion shares per day. In contrast, there was not a single day in May where volume was less than 5.1 billion. Here’s the breakdown:
# of Days Volume Exceeded: May June
6 billion 7 1
7 billion 2 0
8 billion 4 0
This tells me that the market is probably not dropping on any aggressive selling, as opposed to the first two months of this year. In contrast, the bond market has been soaring. Investors who shunned any form of fixed income other than CDs and treasuries have been buying up great quantities of bonds, driving yields lower. Yields on junk bonds, which were around 18% in March, have now dropped to around 10%. On Monday, seven billion in new corporate bond offerings were grabbed by investors (as opposed to the normal 4 billion). This is all the more impressive in that this occurred just before a 3 day offering of over 100 billion dollars in new treasuries. This afternoon, the 2 year auction took place. It went extremely well, with the yield coming in at 1.15, below the when issued yield of 1.19. Although there are 2 more days to go, this is certainly an encouraging sign.
As regular readers of this blog know, I had been pretty negative on the equity markets for most of last year. This was based to a great extent on the near collapse of the credit markets. Now that they have solidified, it would stand to reason that the stock market should follow suit at some point. Of course, volatility is still high and anything could happen over the short run. It should be an interesting summer!
