SIA Weekly Equity Leaders: Bonds Favoured Over Stocks

by SIACharts.com

For this week’s edition of the Equity Leaders Weekly we will take a look at a comparison chart of U.S. equities vs. U.S. bonds to dig into the relationship between the two and then we will also take a look at interest rates in the U.S. as the Fed decided to leave rates unchanged in yesterday’s meeting.

Within the U.S. we have seen both U.S. bonds and U.S. equities post strong positive moves after the shakeout of Brexit. U.S. bonds have been rallying this year where yields hit all time lows earlier this month while at the same time we have seen the S&P 500 Index move past strong resistance and on to all time highs. It is a bizarre scenario when both bonds and equities are moving in the same direction as record low yields imply low growth however the U.S. equites markets do not seem to notice. As a result, it is not surprising that Bonds and U.S. Equities occupy the #1 and #2 spots in the SIA Asset Class Rankings, respectively.

iShares Core S&P 500 ETF (IVV) vs. the iShares 20+ Year Treasury Bond ETF (TLT)

A comparison chart of equities vs bonds can help us visually understand the potential relationship between the two asset groups as both have been posting solid positive moves this year with TLT is up ~16% YTD while IVV is up 6.99% YTD. These positive moves could be a result of a flight to safety in U.S. treasuries as a fallout from Brexit and sound economic data points to a more positive outlook on growth in the US, one of the few bright spots in the global equities markets.

In analyzing the comparison chart we can see that for most of 2011 bonds outperformed equities. This trend reversed and equities took the leadership until the beginning of 2014. Since then we can see the downtrend of lower peaks and lower troughs favouring bonds once again. This is the importance of analyzing relative strength because even as we have seen strength in the equities markets we can still see that the longer term trend with strength in bonds versus equities is still intact. The comparison chart exhibits an SMAX score of 4 which tells us that TLT is also favoured on a shorter term basis.

Click on Image to Enlarge

844_1_20160727_303324_303749_0_23631

844_1_20160727_333315_0_0_23632

CBOE Interest Rate 30-yr (TYX.I)

We last looked at Treasury yields a little over a month ago where TYX.I was approaching support at 2.21%. Market reaction to Brexit pushed yields to record low levels with the 30-yr yield moving as low as 2.13% before bouncing slightly to sit at 2.28% as of yesterday’s close. If TYX.I continues up off this bounce we could see resistance come into play at 2.39% and a move above this could carry on to the ~2.5% level. Support can be found at ~2.1%.

As most expected, the Federal Reserve chose to leave the Fed Funds rate at 0.25-0.5% after their meeting today saying they will “closely monitor inflation indicators and global economic and financial developments” as to what they will do next. Recent economic data in the U.S. has been pointing to a strengthening U.S. economy, but they have yet to see everything they need to increase their rate. Lower interest rates continue to be a positive for long term bonds however they will also be more sensitive to rate increase when they happen at some point in the future.

For a more in-depth analysis on the relative strength of the equity markets, bonds, commodities, currencies, etc. or for more information on SIACharts.com, you can contact our customer support at 1-877-668-1332 or at siateam@siacharts.com.

Click on Image to Enlarge

SIACharts.com specifically represents that it does not give investment advice or advocate the purchase or sale of any security or investment. None of the information contained in this website or document constitutes an offer to sell or the solicitation of an offer to buy any security or other investment or an offer to provide investment services of any kind. Neither SIACharts.com (FundCharts Inc.) nor its third party content providers shall be liable for any errors, inaccuracies or delays in content, or for any actions taken in reliance thereon.

Copyright © SIACharts.com

Total
0
Shares
Previous Article

Rob Arnott's tips for good value hunting

Next Article

Drawing the negative space - Mawer

Related Posts
Subscribe to AdvisorAnalyst.com notifications
Watch. Listen. Read. Raise your average.