Bonds Ain't Buying The Cyclical Bounce Off Black Monday's Lows

Submitted by Byrce Coward via Gavekal Capital blog,

Given the cyclical leadership dynamics since the 8/24 low in stocks, one would have guessed that bonds would have sold off in lockstep with stocks rising. One would have been wrong.

Since 8/24 it’s been energy, tech, materials discretionary and industrial leading the way with health care, telecom and utilities bringing up the rear. That is pretty strong cyclical leadership, as the chart below shows, and the type of sector rotation that would be expected in an environment of rising growth or inflation expectations.

As chart below shows, the S&P 500 is up about 5.5% since 8/24. Yet, the US 10-year bond is back trading at exactly the same level as it was when stocks were shunned in late August and “safety” was bid – about 2%. Bonds are if anything saying that growth and inflation expectations remain weak.

This tells us something about the rally in stocks and at the very least calls into question the sustainability of the recent rotation to the most cyclical groups.

Comments

[Mark Mywords]

What about the dip being bought this afternoon which, disappointingly, began 10 minutes before the regularly-scheduled 3:30 rampfest?

[Keltner Channel Surf]

In waiting for Satan, one shouldn't complain if he's a bit early  :)

[TheBoyPlunger]

The RUT has already started rolling over hard again and should drag the /ES down with it. Takes the algos a few days to be reprogrammed.

[Keltner Channel Surf]

Ever since the new version of FIFA came out for xBox and PlayStation, algorithmic change requests have been taking longer, must be a coincidence ...

[HedgeAccordingly]

Anyone with a house in Canada may be the 1%, and other reasons to fear for humanity

[Pool Shark]

Good point and interesting article, but I doubt any of those people in the article 'own' their home.

The Banksters who hold the mortgages on the other hand...

[franzpick]

Banks aren't buying it either:

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=bkx&insttype=&freq=1&show=&time=8

[Gilnut]

USDJPY is resisting the 3:30 rampfest too.  Looking determined to roll back over before close.

[abyssinian]

well someobdy is buying stocks to push price up or trigger short squeeze. rigging will going on and on. 

[Tao Macro]

87 style crash ahead?

http://taomacro.com/crash-comparisons-with-1929-1987-and-2015.html

[buzzsaw99]

someone noticed. amazing.

[huggy_in_london]

or bonds are ridiculously overpriced (or they both are!)