I have been on the sidelines lately. I still hold NSL and EAD, both have performed well for me. I am in no hurry to allocate capital now.
John Murphy had some interesting things to say today about interest rates. I was also reading something about interest rates yesterday and the author said that long-term rates are coming down because the Fed is raising short-term rates and thus mitigating inflation long-term.
Every recession in the last forty years has been preceded by an inverted yield curve.
Bond yields fell sharply last Friday on a weak jobs report. Fourth quarter GDP came in way below expectations and was the weakest of the year. That's also pushed yields lower. The fact that bond prices have done better than stocks so far this year also suggests a more defensive attitude on the part of investors. Then there's the impact of falling bond yields on the yield curve.
Energy stocks remain the market's strongest sector -- while technology is the weakest. That's a bad combination for the stock market. The fact that consumer staples and utilities have been market leaders early in the new year (along with energy) is a sign that the economic cycle could be peaking. Then there's the January Barometer which gave a negative vote for the market this year. A little known aspect of January's performance is that sector leaders during January often lead for the entire year. And sector laggards often lag for the balance of the year. That's another vote for defensive market sectors -- especially energy. If rising energy shares are hinting at higher oil prices, that's not going to be good for the rest of the market or the economy. Maybe that's why bond yields are dropping.
The above statements are John Murphy's from Stockcharts.com.
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