19Aug10:49 amEST

Happy Friday: Credit is Leading Stocks to New Bear Market Lows

As they say, only death and taxes are guarantees in life. And when it comes to markets, guarantees are akin to the Loch Ness Monster, despite what you may read on social media or see on TV. 

That said, credit leading equities lower during times of distress is often an excellent tell.And I expect that to be all the more of the case this inflationary cycle.

First and foremost, you will note the spike higher in rates on the 10-Year Note this morning, nearing 3% again after spending chunk of the summer below it. 

Indeed, the lingering disconnect between rates on the 10-Year and the actual inflation rate is jaw-dropping and certainly presents an ongoing Black Swan risk for a bond market crash into autumn. 

But turning to high yield credit, HYG (below on the daily chart) and Junk Bonds in JNK are following-through lower this morning after an ugly session on Wednesday. 

In conjunction with rates on the 10-Year on the upswing, HYG JNK moving lower like this is a massive red flag for growth stocks in autumn after a summer respite and even a meme stock party to cap it all off in BBBY FUBO.

As noted previously, HYG JNK remain in strong overall downtrends in 2022, which implies that the failure of this summer rally will lead to fresh lows. Similar comments apply to growth stocks like the ARKK names, "FAANG" names, biotechs, chips, and software. 

With Jackson Hole one week away we may get some more gamesmanship from the market ripping longs and shorts alike. However, it is important after a summer like this to maintain the broad perspective, as we strive to do with Members, so as to not get lost in the weeds. 

I Wear a Parchment Paper Hat... Don't Fight the Last War!


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