Those who doubted U.S. bond viability in January – and who still doubt it today – may be missing the big picture. U.S. debt is still regarded as safer than most, if not all, other nations. Moreover, yields for long-term U.S. debt are more attractive than those of other industrialized countries. Even intermediate-term debt comparisons are quite favorable, as the yield of the 10-year Treasury is more than double that of the 10-year German bund. It stands to reason, then, that safety seekers as well as income seekers will still want a piece of the U.S. bond pie.
Let me offer one additional thought about the possibility of a significant correction for the first time in three years. Buying the dips proved beneficial in 2012 and in 2013. It also worked in January and in July of this year. However, the U.S. Federal Reserve had been fully engaged in its stimulus providing, quantitative easing, bond-buying endeavors. The Fed’s intention to end its purchases for good in October is coming at a time when the global economy is weak and the U.S. real estate market is fragile.
Not surprisingly, the NYSE High-Low Index is the latest technical indicator to flash a yellow warning. When the NYSE High-Low Index moves above and stays above 50, one often regards the sign as bullish. When the index moves below and stays below 50 – when new lows consistently outnumber new highs – many regard this as a signal that U.S. stocks have taken a bearish turn. In September alone, the High-Low Index has moved from the low 90s to 50.3.
