Throughout the last 5 years, the financial markets have moved with high yield bonds (also called Junk Bonds) leading stocks. This makes sense: as the financial system began recovering from the 2008 Crash, money began flowing back into riskier and riskier assets.
You can see this below, with High Yield Bonds outperforming stocks, leading them higher from 2009-2014. With interest rates at 0%, investors were hungry for yield. Stocks only offered 2-3%, so this lead investors into Junk Bonds which typically yield 7% or even more.
Then something happened. Junk Bonds began to collapse… in a BIG WAY.
Indeed, Junk Bonds have been flashing a MAJOR warning signal that something BAD is coming. But stocks have ignored it for all of 2014.
Indeed, if you look at what happened during the October 2014 correction, you see that High Yield Bonds did NOT buy into the bounce AT ALL!
This is a MAJOR warning signal that the great “recovery” in risk assets was ending. The Fed spent over $4 trillion and managed to create another stock market bubble, but that bubble is ending.
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Phoenix Capital Research