An interesting divergence has been building between stocks and Treasury bonds lately. Typically, stocks and Treasury bond yields move together as money moves back and forth between stocks and “safe” bonds. Lately however, they have not. Money is actually going into both stocks AND bonds, and unfortunately the bond market is usually correct, indicating stocks could be heading lower out of the current range. The lines I drew on the chart below show where I see some important levels. Good news is that we haven’t broken the trend of “higher-highs” and “higher-lows” just yet. If things do break down though, we may be testing the June lows around 1265…
Another tough pill to swallow is that quite a few companies are starting to show signs of slower consumer spending. Chipotle took a 23% hit after reporting lower than expected same store sales. This is starting to leave us with few areas to invest for growth. Nothing brings stocks down like decelerating growth so I’m leaning towards to holding a little extra cash and waiting for opportunities to arise.
One of the few bright notes this week is that while bond yields continue to fall, there are still plenty of places to find decent yields within dividend paying stocks.