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A Bird's Eye View Blog

Fireside Charts: Safe Haven Assets Surge as Investors Seek Protection From Market Volatility

By:BCM Investment Team | Date:Aug19, 2019 | Category: Equity, Economics, Market Highlights, Fireside Charts

Investors seem to be piling into safe haven assets as volatility in both the stock and bond markets continues to make headlines this week. A move to treasuries may be risky though as their yields are still hovering around historic lows, despite a small recovery for the 30-year following hints that the U.S. may begin to issue longer-term debt. However, this struggle does not seem to have infiltrated the high-yield bond market yet. Meanwhile, the series of ascending "wedges" seen in the S&P 500 has captured our attention—could this be an indication that this bull market is approaching its end? The trade war certainly isn't helping matters, and it's particularly weighing on the U.S. farmers as grains, cattle, and hog futures continue to struggle. Another seemingly unintended consequence of the trade war is the continually increasing value of the U.S. dollar, which—though President Trump has repeatedly complained it is too strong—has spiked 12.1% since February 2018. 

1. That's because investors want growth AND defense!!

 

Source: WSJ Daily Shot, as of 8/19/19

 

 

2. To reiterate an under-reported fact, the Fed stopped QE reversal 2 months early last meeting...

 

Source: The Chart Store, as of 8/18/19

 

 

3. Bonds appear over-bought. Regardless, with the U.S. talking about issuing 50 and 100 year bonds, the 30 year UST backed up a bit as demand should wane if longer bonds become available to buyers like insurance companies.

 

Source: WSJ Daily Shot, as of 8/19/19

 

 

4. But so far, junk bonds have not followed treasury yields lower...

 

 Source: The Chart Store, as of 8/18/19

 

 

5. This makes sense as the higher-yielding stock sectors compete with Treasuries for capital seeking yield...

 

 Source: Scotiabank, Bloomberg, as of 8/12/19

 

 

6. From a technical standpoint, there are a lot of ascending wedges in the "common" indices such as the S&P 500; an indication of future weakness?

 

Source: The Chart Store, as of 8/18/19

 

 

7. Once again the U.S. farmer is bearing the brunt of the trade war as grains continue to struggle...

 

 Source: WSJ Daily Shot, as of 8/19/19

 

 

8. ... and cattle...

 

 Source: WSJ Daily Shot, as of 8/19/19

 

 

9. ...and hogs. This despite the swine flu in China which has decimated stocks and thus the price spikes earlier this year...

 

 Source: WSJ Daily Shot, as of 8/19/19

 

 

10. The USD keeps grinding higher, it is up 12.1% since the February of 2018 low...

 

Source: The Chart Store, as of 8/18/19

 

 

11. All the maturing USD denominated debt in the emerging markets can be refinanced at lower rates...

 

 Source: Thomson One, IIF, as of 8/19/19

 

 

12. And finally—as an opinion—with $1.5 trillion of student debt, it is no wonder we are in a slow growth economy. The student debt is limiting other large purchases such as homes and cars which help drive economic growth...

 

 Source: Liberty Street Economics, as of 8/19/19

 

 

Economists were left somewhat puzzled by Chairman Powell's comments following last month's FOMC meeting, unsure whether we were entering an extended period of economic easing, or if the July cut truly was a one-time "midcycle adjustment." Much has happened in the weeks since that meeting, and anticipation is sky-high for any additional insights that may come from Powell's Friday speech in Jackson Hole. Do you expect the U.S. to follow the global trend and continue lowering interest rates, and—more to the point—do you believe additional cuts will be effective protection against an economic slowdown? Let us know by clicking below!

 

Will Powell's Speech Sooth the Markets?

 

Disclosure: The charts and info-graphics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are a recommendation to take any action. Individual securities mentioned may be held in client accounts.