11 Jul Another quiet economic news day
Bonds are still showing a lack of strength today after making a failed attempt yesterday to challenge their 100-day moving average. Further, stocks have also failed to make any significant gains in recent trading days. This is indicative of a market where investors are converting some of their holdings into cash. Many see stocks as vulnerable to a short-term correction while also fearing interest rates moving higher as the Fed looks to reduce its balance sheet. This will lead investors to carry a higher ratio of cash within their portfolios. My guess is that is what we are seeing now.
Today is another quiet economic news day. However, economic reports heat up as the week moves on. Given the lack of news, bonds will trade heavily based on the technical picture. Given the trend of recent weak performance, this could set us up for another unwanted step up in mortgage interest rates. With bonds at a critical level, now is a time to be cautious.
The unwinding of the Fed’s balance sheet will be an unprecedented event that could prove more disruptive than many believe. Given that the Fed has never had a balance sheet even close to as inflated as it now is, the reversal of Quantitative Easing could cause interest rates to rise higher than expected and the stock market to fall greater than many would believe likely. Unfortunately, it’s a challenge that will be faced in the coming months. This also creates a strong argument for carrying a higher ratio of cash in your investment portfolio.
With markets still under pressure, we will maintain our locking bias.