With the stock market on uneven territory in the longest running Bull Market in history, treasury yields are increasing, signaling signs of potential market trouble. Most pundits agree that the economy that is bursting with new levels and higher stock valuations is nearing its redline. Such a hot market could push the ten year treasury yield to well over three or four percent. Such a move would be extremely bad for the likes of the stock market.
Several futures experts have stated they feel the yield on the ten year could move over four percent, a level it hasn’t hit since the fall of 2007. As the economy moves to higher levels central banks will take action to decouple from the quantitative easing policies that have kept cash moving through the markets. Removing excess cash by reducing the amount of bonds central banks are still buying to buoy yields will further put pressure on the markets.
We have already seen how rising rates on the ten-year have made markets jittery. Since 2009 most indices have risen sharply but that is because the yields of treasuries were bolstered by the central banking system keeping them artificially low. Doing so seemed to stabilize the market and created a period of growth, or reduced the effects of the Great Recession.
Increasing global risk has also led to the uneasy feeling in the markets. Several other analysts have linked the ongoing market volatility to “Black Monday”, the market sell off that occurred in 1987. The increasing fear brought on by tariffs and the potential full out trade war with China, the already higher treasury yields, no solution to the Bexit dilemma and the political issues in Italy signal a global shift in market stability. Or just a myriad of turmoil all over.
Add to this the current slump in the housing market in the United States and we have all of the makings of a market “pause”. Existing home sales are recently down approximately 4% from a year earlier signaling a decline in the readiness of willing buyers to continue to purchase. Rising interest rates have also contributed to decline in home sales as mortgage rates going up creates an increase in the cost to borrow the same amount for would be borrowers. Market analysts have been hypothesizing for a number of quarters that a real estate issue will happen in Canada or China in the coming quarters of next several years that could spark another global down turn.
In the coming weeks the markets could show signs of fatigue from the conditions mentioned above and will give market players additional volatility as an early holiday present. This sentiment is out there while other analysts feel that the earnings of many companies due to report will signal full steam ahead for the market. So market experts are divided into almost a black and white scenario.
Investors should be cycling through invest classes and lowering dependency on large tech names where big market moves can be seen to be detrimental to a portfolio. To ride out the storm that is likely to continue for the near term, institutional and individual investors should take advantage of the shifting market components that revisit risk levels.
Here at the Ribotsky Institute, our main suggestion is to take some profits off the table now before the possible larger correction or outright downtrend invokes itself. In the game of musical chairs once the music stops you better find a cushion to sit on or………