It is important for strength to persist, and for reflation expectations to continue to turn up. Should our inflation rotation models sense a change in underlying tone, there is a chance we rotate into bonds. It is for this reason that next week is pivotal. Historically, emerging markets have had many 5%+ weekly up moves. As algorithms begin noticing an end to US momentum and a start to emerging market strength, it will likely become a self-fulfilling momentum trade that very few will see coming.
As America and other developed nations struggle to recover from the financial crisis, the ongoing challenge now starts to claim casualties in multiple asset classes around the world.
As if it wasn’t bad enough for the millions of Americans scraping by on paltry interest payments, now they face another threat: the loss of principal on their bonds and other fixed-income assets.
The sell-off in fixed income began slowly on May 10, an otherwise uneventful day with no obvious catalyst for any change in sentiment. It picked up steam when Fed sources didn’t step forward to calm markets. Then, in comments to Congress on May 22, Mr. Bernanke said, “We could in the next few meetings take a step down in our pace of purchases.”
Technical Intermarket Analysis Of Commodities, Bonds And Stocks Raises Bear Market Target For Stocks
Two giant markets, commodities and bonds, are in close agreement about the declining trend of nominal GDP growth. This is at variance with the message being sent from the U.S. stock market, which remains bullishly-configured and which benefits from fast nominal GDP growth.
"If stocks do indeed peak in April (if not sooner) and sell off over the next few months, where exactly is the money likely to go that is flowing out of the stock market? In other words, how can investors seize the opportunity offered by stock investors "selling in April and going away"? Recent history since the outbreak of the financial crisis several years ago leads to two distinct answers."
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