The yield curve is the flattest that it has been in roughly five years. That is a sign that the bond market is more afraid of a monetary policy mis-step by the Fed – and a subsequent beleaguered economy – than it worries about the raising of short-term lending rates themselves. You’ve heard the expression, “Don’t fight the Fed.” Well, you should not fight the trend either, and the trend for influential intermediate-term treasuries in iShares 7-10 Year Treasury Bond (IEF) is very strong.
Equally impressive? Vanguard Extended Duration (EDV). The longest end of the yield curve with bonds in the 25+ arena is one of the strongest performers year-to-date. Moreover, EDV has yet to show signs of a significant slowdown. In essence, monthly job growth averaging 200,000 is having little impact on safety-seekers, whereas a larger percentage of workers in the workforce coupled with actual wage growth is what would be required to take down the long-term bond beast.
This is not to suggest that stock ETFs have rolled over completely. On the contrary. Some stock ETFs look ripe for additional dollars. I have been a big advocate for Asia fro many months, whether you are a single country fan of SPDR China (GXC) or a regional fan of iShares MSCI Asia excl Japan (AAXJ). You can stick with large-cap proxies in the U.S. until you hit stop-limit loss orders or experience a trendline breach. By the same token, be mindful of institutional asset managers selling on strength as well as the ratio between advancers and decliners. The deterioration in this ratio may be hinting at eventual trouble for all U.S. index trackers.