Despite a coronavirus scare that threw a curve ball at investors, U.S. equities are back on their path to more highs. However, that doesn’t mean they’re necessarily throwing caution to the wind because investors are also piling into bonds, which makes one wonder–is there a double bubble brewing for both asset classes?
Since bond prices move conversely to yields, the interest rate on safe haven Treasury notes have taken a dive as evidenced in last week’s move in the long end of the yield curve. According to a recent Wall Street Journal report, the U.S. Treasury Dept “sold 30-year bonds at a record low yield on Thursday, highlighting investors’ demand for longer-term debt and its benefits to the government.The Treasury sold $19 billion of 30-year bonds on Thursday afternoon at a 2.061% yield.”
However, low yields aren’t stopping investors from continuing to allocate capital into bonds.
“Despite paltry yields, highlighted by the benchmark 10-year Treasury under 1.60%, they poured a record $23.6 billion into fixed-income mutual funds and exchange-traded funds this past week, according to data tracker EPFR,” wrote Randall W. Forsyth in a Barron’s article. “At the current pace, investors are pumping cash into bond funds at a $1 trillion annual rate, notes Bank of America. And they’re doing it without much apparent regard for valuations or risk.”
So in the current market environment, it’s difficult to tell whether it’s risk on or risk off. The coronavirus has been the wild card as of late, causing investors to tap into the safety of bond funds, but at the same time, major indexes like the S&P 500 are hitting record highs.
“EPFR data show another $12.5 billion going into stock funds in the latest week. Investors have been pumping up ‘twin bubbles’ in investment-grade bond and technology stock funds, BofA observes,” Forsyth wrote. “That’s part of the widely popular “barbell strategy,” using lower-volatility, dividend-paying stocks, such as consumer staples and utilities, as a counterweight to the riskier megacap technology stocks that have propelled the major market averages to record highs.”
If there’s a trade to be had here, why not consider more strength in U.S. equities?
Trading Strength for U.S. Equities
For investors looking for continued upside in U.S. equities over international equities, the Direxion FTSE Russell US Over International ETF (NYSEArca: RWUI) offers them the ability to benefit not only from domestic U.S. markets potentially performing well, but from their outperformance compared to international markets.
- Seeks investment results, before fees and expenses, that track the Russell 1000®/FTSE All-World ex-US 150/50 Net Spread Index (the “index”).
- The fund, under normal circumstances, invests at least 80% of its net assets (plus borrowing for investment purposes) in securities that comprise the Long Component of the index or shares of ETFs on the Long Component of the index.
- The index measures the performance of a portfolio that has 150% long exposure to the Russell 1000® Index (the “Long Component”) and 50% short exposure to the FTSE All-World ex-US Index (the “Short Component”).
For more market trends, visit ETF Trends.