Equity Markets “Take Off” as Rates Rise

It is always disappointing to me to see the silliness of the marketplace in reaction to potential deals–such as trade deals.

We don’t do politics, at all, on the website, but for once I would like to see both stocks and bonds trade on fundamentals.

We have so-called ‘trade deals’ which move the markets and we have a FED that is being controlled by short term market movements. Then we have algorithms moving the market based on whatever key words are in the news

Early this morning we had a quiet market–both interest rates and stocks were off just a bit–nice and quiet just like we prefer. Then a tweet and a meeting at the Whitehouse on China sends market sharply higher. Stocks up 1% and interest rates up 7 basis points (9 basis points higher from earlier levels) on the day.

Now in the end it doesn’t matter too much to me–holding what I hold there isn’t much movement, but I do worry about movements in markets getting out of control–irrational exuberance–as these things eventually (who knows when) come home to roost with movements in the opposite direction.

Oh well I guess I should get used to it–it certainly seems like the new norm.

15 thoughts on “Equity Markets “Take Off” as Rates Rise”

  1. I’m concerned that after a couple years focusing on trade deals, the deals will be signed and then the impact upon total trade and upon GDP won’t be that significant. How will the markets react then?

    1. I hear you Martin. I don’t get it either or why as the 10 yr moves a few basis points we seem to get instant reactions from the preferreds

    2. High frequency trading algorithms do most of the daily trading nowadays Martin…to the extent ‘tweets’ disrupt their ability to control the markets I applaud them.

  2. Tim, where is that list of matured but still trading preferreds and baby bonds you disclosed a few weeks back?

  3. 10-yr Treasuries a/o 11am EST show 11 basis point trading range today. Seems like market sees rates going up for near future.

  4. Irrational exuberance and irrational pessimism depending on the events of the moments. One of the reasons, I don’t buy the lower coupons is I do not accept a 1.5% 10 year rate. To me that happens when the market gets overworked on no trade deal.

    Early in the year, most said the 10 year would be about 2.0% – 2.25%. I do think that’s about right.

    1. Gary – I watched that interview yesterday. Not sure there was new news–I think we are all worried, but without timing knowledge we could leave our money buried in the backyard for a long time.

    2. Gary, Gundlach also had a 1 hour interview with Yahoo a week earlier. He’s been saying the same thing all year. I remember selling some of my corp. bond funds back in spring after his scare mongering and reading the Morgan Stanley Nature of the BBBeast paper. (Too early. Regrets…)

      Gundlach has legitimate basis for his BBB bond market implosion thesis. But stuff takes so much longer to break down when gov’t support is there. Gradually, then suddenly. But when this suddenly happens in this debt-laden system- there is a lot of corporate debt that is rolling over in 2020. When the liquidity dries up? No saying.

  5. Yup, markets seem to be increasing reactive to the headlines du jour, the more spectacular the better.

    In my 35 years of investing, this unjustified volatility (up & down) has been one of the warning signs of the end of a bull market. No reason to doubt it now. And no, things are NOT different this time.

    So, investors, keep your cash stash handy. Might be some nice investment grade preferreds available for < i$$ue price in the not-too-distant future.

    1. Yeah I think we are starting to see irrational behavior in the market. Market moves on a tweet not fundamentals. Im keeping my powder dry until the end of January.

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