Just consider: The yield on the 30-year Treasury bond sank another 10 basis points to 2.68%. That’s the lowest since the August 2015 crash day. If this key yield drops just a few basis points more, it’ll be at the lowest level since last spring.
Or how about the iShares 7-10 Year Treasury Bond ETF (IEF), an ETF that tracks the price of mid-duration Treasuries? As you probably know, bond prices move in the opposite direction of interest rates. So I sat up and noticed when IEF rose to its highest level since last February today.
That’s not all. The BOJ’s latest step isn’t doing anything for the mega-banks based in Japan that trade here. Mitsubishi UFJ Financial Group (MTU) and Mizuho Financial Group (MFG) both just plunged to their lowest levels since December 2013 today.
|Treasury bonds yields are falling: What does it mean?|
That mirrors the dismal action in European banks, which aren’t getting a leg up at all from the European Central Bank’s endless promises of more purported “stimulus.” Deutsche Bank (DB) of Germany, Credit Suisse Group (CS) of Switzerland, and Barclays PLC (BCS) of the U.K. — just to name a few — haven’t bounced at all. In fact, they’re all plumbing multi-year lows … and in some cases, undercutting the worst crisis-era lows they set in 2008 and 2009.
Then there’s the action in the Dow Jones Utility Index. Utility stocks are classic recession/deflation plays because of their above-market dividend yields and downturn-resistant businesses. That makes it hard to ignore the fact this index just broke out to a one-year high.
Lastly, there are the other major averages. The Dow Industrials plunged almost 300 points today, while the S&P 500 gave up almost all of Friday’s BOJ-driven gains.
These are NOT the kinds of reaction to central bank stimulus we used to see during the six-and-a-half-year bull market. Stocks that used to rally on stimulus, and bonds that used to sell off, are behaving exactly the opposite now. That is proof positive the stimulus isn’t working, and classic bear market behavior.
|“These are NOT the kinds of reaction to central bank stimulus we used to see.”|
Could it change at some point? Sure. Is it changing yet? Nope. So I recommend you continue to stay cautious and stay alert. Play defense with the core funds in your portfolio, and consider peeling off a portion of your funds for hedges and/or other investments that rise in value when stocks fall. My favorites can be found in my Interest Rate Speculator service.
So now that you have my take on the latest bond market action — and what it means for stocks — what’s your view? If bonds don’t seem to “believe” the BOJ’s latest move will work, should you? Or do you think stocks can rally further regardless of what interest rates do? Let me know in the comments section.
Negative interest rates in Japan. OPEC’s policy toward oil production. The outlook for U.S. stock markets. Those are just a few of the topics you’ve been discussing online.
Reader Sherman B. said we should all be prepared for some wild swings: “Every indicator suggests a slowdown of the world economy for the first half. I expect a modest recovery in the second half, followed by a seasonal boost. Employment and stock prices will continue to be volatile, so investors are understandably nervous.
“Where to put money? Diversity is more important than ever, including energy, which has to rebound ultimately as the weak go under.”
With regards to the Bank of Japan’s latest gambit, Reader Books said: “Negative interest rates. Hmm. It has been years since retirees anywhere have made any interest on safe investments. It pushes retirees into high risk investments in a quest for any kind of income. Not good.”
Speaking of which, Reader Gordon said: “The whole government double standard is just amazing. The government is trying to sell workers on the idea of saving money for their retirement. Well, I am there now and being shafted with low-to-negative interest rates and no return on my dead money unless I want to gamble in the stock market.
“Then the government does a 360 and tells us we must keep consumer spending up to keep the country rolling along and workers working. They feed us the low interest rates carrot. Then they do the old 360 again and point out to us that consumer debt is reaching dangerous levels and we should be worried. The consumer is whipsawed in all of this.”
On the oil front, Reader Ted F. posed a handful of questions to the group: “Is OPEC going to bankrupt itself before oil production is cut? And what are they going to do when the well runs dry? Also, what will this country do when we have all the oil?”
In response, Reader Richard Mc F. said: “A good program which would save our domestic petroleum producers would be to proceed to fill the strategic petroleum reserve with domestically produced oil purchased at $50 per barrel. This would provide producers with a sustainable price for their oil, build out a strong reserve, and provide a sustainable profit opportunity, as oil from the reserve could be sold in the marketplace in the future when the price of crude rises.
“That would save domestic producers from financial ruin and recreate jobs in the industry, which would employ needed talent. It would also allow OPEC to self destruct without killing our economy.”
But Reader Jim said: “I have been an independent oil producer for forty years. I don’t want a bailout. All I want is for the free market to be left alone to work. Central planners screwing with the economy always make things worse.
“Oil should never have been $147-a-barrel years ago, and it shouldn’t be $25 now. How can we be expected to conduct rational business plans when we have no idea what regulation or manipulation they will throw at us or withdraw from us next?”
Thanks for weighing in. We are truly seeing some amazing developments in the interest rate and energy markets — and it’s obvious they are greatly influencing stock market action day in and day out. So I’ll definitely keep you abreast of all the swings and what they mean in the big picture here in Money and Markets. Meanwhile, feel free to add any additional comments below.
It was a tight race in Iowa, but ultimately Democratic front-runner Hillary Clinton narrowly beat out Bernie Sanders for the win. On the Republican side, Ted Cruz topped Donald Trump while Marco Rubio came in a strong third.
China National Chemical Corp. is spreading its wings, buying the Swiss agricultural chemical giant Syngenta AG (SYT) for around 470 Swiss francs per share. That represents a 24% premium to where SYT was trading in Europe before the news. The $42.8 billion deal would represent the single-biggest Chinese acquisition ever if it is ultimately consummated.
The struggle for “Big Oil” is real, with the latest report from the British energy giant BP Plc (BP) showing massive losses of $2.2 billion in the fourth quarter alone. BP is planning to cut 7,000 jobs over the next couple of years, and writing down the value of oil and gas properties in the North Sea and Angola.
On the flip side, Internet search behemoth Alphabet (GOOGL) had investors cheering after it reported a 19% surge in fourth-quarter sales. Earnings per share came in at $8.67, well above the average forecast of $8.08. Strength in its core search and advertising operations offset large losses in its “Other Bets” businesses – things like health technology, robotics, the “Nest” home thermostat, and so on.
Looking for a break from winter? Well, according to Punxsutawney Phil, you’re in luck. The famous groundhog didn’t see his shadow this morning, suggesting we’re going to have an early spring rather than six more weeks of winter. That’s assuming you believe in the prognosticating power of a woodchuck.
So what’s behind China’s latest mega-foray into the global M&A business? How do you think the next phase of the election cycle will play out, now that we have the Iowa results? Is it safe for us all to put away our winter coats now that Phil has shared his “wisdom” with the world? Use the comment section below to weigh in.
Until next time,
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