This market is different. It’s not the range bound market we’ve had for nearly 2 years where investors were bidding up prices of anything with a yield. It’s not that market at all. Take a look at the chart below. The darlings (Utilities and Consumer Staples) of the last 200 days have turned into just the opposite. The last 42 trading days have created a major shift in sector leadership and the feel of the market overall. It seems the appetite for risk is increasing – and this sentiment is supported in the bond market as well. The BofA Merril Lynch US High Yield Spread is tightening (difference in yield between “Risky” bonds and treasury bonds) – look at both the pace and the amount of tightening, Chart is HERE.
Is it because of potential rate hikes, improving economic outlook, presidential election? Who knows.
The better question is what if this continues and the market rips higher over the next 12 months…or what if it doesn’t? Having a strategy that can adapt to either will be critical.