The bond market is getting nervous. And that nervousness should eventually spill over into the stock market.
Let me explain…
Long-term U.S. Treasury bond prices fell more than 1% last week. They’ve fallen 4% since early December. That’s quite an ugly move for a government-guaranteed bond.
As a result, interest rates – which rise as bond prices fall – have spiked higher. For example, the yield on the 10-year Treasury note hit 2.64% on Friday. That’s 30 basis points higher than where it was one month ago. It’s almost 60 points higher than where it was in September.
That’s the sort of move that often occurs a few months ahead of an important stock market peak.
Think about this…
Back in January 1999, the 10-year yield was just 4.5%. One year later, it was 6.75% – a spike of 50%. The dot-com bubble popped two months later.
In 2007, rates bottomed in March at 4.5%. By July, they had risen to 5.5% – a 22% increase in just four months. The stock market peaked that September.
Here’s how the 10-year Treasury note yield looks today…
The 10-year yield bottomed near 2% last September. Today, it’s near 2.64%. That’s a 32% increase in less than four months.
The interest rate signal is flashing bright yellow…
Now, it’s not a sign to sell everything and head for the bunker. It’s not a signal telling us to get aggressively short the stock market. The price momentum is far too bullish to do that.
This interest rate signal is just a friendly reminder to be a little bit careful. Maybe start looking for ways to protect your portfolio – like raising stops on long positions, or buying some protective puts.
It’s like Grandma reminding us to put on sunscreen as we head out to the beach. Go ahead and have fun in the sun. Maybe there’s nothing to worry about after all.
But, with a little protection, you can avoid getting burned.
Best regards and good trading,
Jeff Clark
Reader Mailbag
Market Minute readers got a kick out of Friday’s issue, “The Problem With a Hot Market”…
“I tried to find an artificial intelligence company that uses blockchain technology to fund marijuana farms…”
Thanks for that one. Nice to start my day with a laugh.
– Will C.
I got a good chuckle from this morning’s Market Minute mailbag comments. Especially when you wrote, “I tried to find an artificial intelligence company that uses blockchain technology to fund marijuana farms…”
That should fit Rene’s desire for a “good hot stock” to trade. Thanks again for the good-humored remarks. It makes the day a little brighter.
– Douglas H.
Good morning Jeff! I have been a subscriber for less than one year and I follow your advice whenever I can. However, I also make decisions on my own but I can say I do better following your advice.
Regarding all those who disagree with what you may be suggesting or “not recommending,” I don’t remember anything in subscribing to your service that says we can’t make decisions or trades on our own! The only thing they can’t do is blame you if they don’t work out. This I know from experience.
Keep up your good work and recommendations!
– Ray D.
And some more thoughtful words about the Delta Report and the markets…
I’m relatively new to your service but I bought lifetime, and I have to say that I really appreciate what you’re doing.
I don’t know much about markets, and I’m learning a lot listening to your thoughts and your near-constant updates. The wins are great, too. Please keep doing what you’re doing.
And watch out for the wildfires. I’m a newly minted crypto millionaire, and I’m pulling a good chunk of the earnings out to the traditional market.
– Vishal P.
I am in full agreement… Market seems totally unsustainable at this level… esp. since Jan. I am essentially closing out many long-term longs…or buying underlying puts to hedge. This guy Clark is very bright. He has experience, and it shows.
One of your readers says, “Lobbyist campaign contributions are not recognized as what they really are – bribery, and money for favors.” However, “lobbying” is always free speech and often in self-defense (inalienable rights). No one spends money to lobby Congress because they have money to burn; most are losing money to the greed of people (including voters) who want to take it by force, or otherwise force them into bad decisions for their organization or family.
The few evil cartoon villains who are in it to hurt society are greatly outnumbered by those who are ignorant of the evil they are doing. The solution is not to ban free speech and other forms of influence – it is our duty to influence our officials and public servants – but to reduce the number of things society tries to control with politics.
If the government were back to its constitutional limits, and members of society took back responsibility for all things – from charity and education and health, to liability for their own failures – the government would have very little to do, and there would be no need to waste money on lobbying them for anything besides world peace and sound money.
– Sandra K.
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