The following is a brief, hopefully easy to understand, explanation of where we feel global markets presently stand.
- The economy is in Sector 4
- The three month S&P 500 is still trending down
- The spread between high-yield debt and the 10 Year Treasury Bond continues to widen indicating risk off
- US Savings Rate continues to increase
This is a three year chart. As of June 30, 2020, the S&P 500 is still in a downward trend. It hit a peak June 8, 2020, and has begun to lose steam and move towards its three year average of 2808.66.
High-yield spreads have begun to widen over the last couple weeks. This indicates that the “smart money” is willing to buy 10 year US treasury bonds instead of high-yield bonds even though there is a 8.31% (average of BB, B, CCC rate bonds) better yield in high-yield debt. There is risk off trade in play.
Over the last 12 months, Americans have drastically increased their savings rates by 19.75%. This jump started in March as the pandemic began in the United States. The countereffect is on Consumer Spending. Retail sales have fallen during the stay-at-home phase of COVID-19. Unfortunately, this is not good for the US economy.
What Does This All Mean?
We are at the start of a long road. The closing of the businesses around the world will have long-lasting effects. I am concerned about the corporate debt to revenue ratio as global growth comes to a crawl.
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