Special Bulletin: February 20, 2020

Economic Data Looks Hot. Bonds Say “Not”!

The stock market continues to rise like the coffers of Presidential hopefuls. Yet, a curious divergence is developing in the action of the much larger, and generally wiser, bond market.

While the economic data being released almost daily continue to paint a rosy picture, that darned old inverted yield curve, like the weeds beginning to pop up in my yard, has reared its ugly head again. And it’s not even spring!

Today, with a 1.30% morning plunge out of nowhere, the stock market may have begun to notice the warning of its much bigger brother, the bond market. After recent releases of red-hot economic data, yesterday in particular, one might have expected bonds to sell-off and cause a jump in interest rates. Au contraire, Jean-Claude! In fact, the opposite happened and likely sparked today’s early sharp sell-off in stocks.

The bond market seems to be saying that the stock market has got it wrong; that it is too optimistic in its outlook and the view of the effects of the virus on the economy. Many experts, commentators & pundits are pointing to the impact of the coronavirus and the increasing probability of a global economic slowdown next quarter. Yet, the US stock market seems to be hard of hearing.

As dictated by the present readings of our “Core Four”, our Current Market Outlook remains “Market in an Uptrend” with a “green” light.

The long-term technical condition of the stock market is sound. The signals from our Core Four internal indicators are still displaying 2 green and 2 yellow lights. (See our recently added signal feature at the top of this post)

For what it’s worth, the Core Four is as close as it gets to turning yellow, without actually going there. We are in one of those periods where our gut, based on experience and intellect, tells us one thing (Yellow- subjective); while our Core Four, based on real numerical data and market internals, tells us another (Green- objective). Having said that, at TPM the Core Four (pure technicals) prevails. 

What can an investor do now? Taking partial profits and reducing higher beta positions makes some sense. Continue to watch for serious distribution (professional selling) over the coming days in the major indexes. Monitor the inverted yield curve.

Have a Triumphant day! ®