Markets Take the Elevator Up
Earlier in the month I wrote about why I believed the bonds are starting to look attractive again. I talked about the fact that signs show the economy is slowing down. By no means I am predicting a recession, but I think much data is pointing toward an economy that is slowing down. If you are interested in learning more, make sure to read the article here.
Yesterday, we got the initial jobless claims and continued claims which both came in higher than anticipated. At the same time, oil prices dropped signaling a potential fall in demand for oil and a lack of economic activity.
During the same time, $TLT, an ETF that tracks long-term bonds, was able to hold a rally, up around 1.5% meaning yields on the long end are coming down.
While I do not think $TLT will come back to $100 this year, I think signs are showing the bond market and rates are stabilizing. I believe there are still more headwinds for the rates and do not feel like investing in TLT is wise, but if you took a position a few weeks ago when I wrote the article, this is a good place to take some profit. Long-end rates below 3% might not be something we see for the next few months.
Bank of America’s monthly survey of fund managers also revealed some really interesting facts about its positioning in the market. Here are the most interesting findings I saw:
Long Big Tech Is Probably the Most Overcrowded Trade.
Survey showed most managers are long big tech. Without a doubt, most fund managers are now chasing performance and their benchmark and they are going long big tech. Over 38% of fund managers said they are going long big tech in November.
And lastly, the market has gotten ahead of itself over the past two weeks. More than a 5% rally in SPY and 10% in Nasdaq in just a few days is not normal market behavior. It usually was the norm that market takes the elevator down, and the stairs up implying rallies are slow, and the sell-offs are fast. In this cycle, however, market just took the elevator up and rallied more than 5% in just a week or so!
Even excluding the Mag 7, the market is expensive considering where the rates are. It does not mean markets cannot remain expensive, it just means if you are looking for value, you might want to wait for a 10% pullback to build a position.