Thursday, July 31, 2014

Bonds and Stocks Both Down

In a flashback to summer of 2013, we have both stocks and bonds down after the blockbuster Q2 GDP number yesterday and fears of an earlier than expected Fed rate hike.  It is interesting to see this happen, as it has not been a common phenomenon this year.  Usually weak stocks have helped bonds.  This looks like positioning ahead of the nonfarm payrolls report, which is expected to be bullish.  I don't have a strong opinion on the number, but this price action in the S&P is awful.  And Europe is lagging badly.  The economy in Europe is moribund, as the German Bund yields clearly show.

I mentioned the bearish bloggers the other day, but those bloggers can be right for a few days, they just usually are wrong over the intermediate term looking out 1 or 2 months.  I would be an interested dip buyer if we can get down to ES 1920-1925 area.  I am still bullish on bonds, and will look to get long soon.


Anonymous said...

Earlier you wrote "The most likely scenario: Stocks selloff in August and September, and bonds rise as we approach the end of QE"

How big, do you think, will the movement be?

Market Owl said...

I am actually surprised to see bonds act weak when equities are so weak. I am bullish on bonds, but only want to buy them on dips when equities are higher. Right now, you are getting dual bond and equities selloffs, which gives me pause in the bond bull scenario.

I would rather just be a dip buyer in ES. I think that is still the high percentage play. Geopolitics is not a sustained bear catalyst, unless you see oil prices spike. And the opposite is happening, with oil going down. Once the market calms down and realizes that the Fed won't be hiking anytime soon, the market will bounce back with a vengeance.