“If mutual funds and ETFs are forced to sell, particularly given that the Street is still not willing to boost risk positioning, who will take the other side?” Antczak wonders. The answer: “Perhaps no one, at least not until valuations cheapen meaningfully.”
“The recent slide in high-yield bonds should give Wall Street investors reason to be on high alert,” writes Tomi Kilgore for WSJ.com’s MarketBeat blog, referring to the pullback in HYG, the junk debt ETF.
“High-yield bonds and stocks can send different messages over the short term. But when the HYG diverges lower like it has been over the past few weeks, investors have reason to be concerned,” he added. “While the HYG’s fall could be seen by some as cash potentially leaving bonds for riskier assets–potentially a bullish sign–equity investors shouldn’t count on that money finding its way into higher-risk stocks … While the HYG’s recent slide is no guarantee a stock selloff is imminent, bulls who have enjoyed a nice run over the past few months may not want to tempt fate.”
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Full disclosure: Tom Lydon’s clients own JNK and HYG.