Junk science: High-yield bonds hold key for stocks
If restricted to only one indicator to handicap the stock market, one could hardly do better than this picture of the high-yield bond market. It shows the spread between junk-bond index yields and 10-year Treasury yields, and it captures most of the key drivers of financial markets: the pull of low yields, willingness to embrace risk, the outlook on corporate profits and liquidity conditions.
Note the long decline since the panic environment of 2009, coinciding with the S&P 500’s 180% surge - interrupted by the Euro debt crisis in 2011, which produced a near-20% U.S. stock-market drop.
Since dropping to near-record lows in late 2013, junk spreads have twice spurted higher - in January-February and in the last six weeks or so. In both cases stocks quickly skidded a bit. So far, the S&P 500 remains well above where it was in the winter when spreads around current levels. There’s not a linear relationship between these to markets, but for context it shows that the stock market had run a good bit ahead of high yield since the spring.
If yield spreads settle down, it should allow for stocks to stabilize, given that absolute junk yields remain below 6% and few signs of credit risk are at hand. But if high yield continues to weaken, exacerbating choppy capital-market conditions elsewhere, it will suggest that a more important mood shift is underway and the late-summer stock-market wooziness won’t quickly pass.
Recommended for You
By Paul Lienert and Bernie Woodall DETROIT (Reuters) - Ford Motor Co's new chief executive, Mark Fields, is giving the automaker's long-moribund Lincoln brand what his predecessor Alan Mulally never could: a little love and a lot of cash. Lincoln, a storied Detroit brand which Ford has owned since…Reuters
WATSONVILLE, Calif. (AP) — A Silicon Valley startup has developed technology to let dispatchers know when a police officer's weapon has been fired.Associated Press
Probably. But you have to be smart about your investments and your withdrawals. some tips.USA TODAY
Being rich is getting expensive. Just ask Sam Wyly and Anne Dias Griffin. Court papers detail what they spend on a monthly basis to support their lifestyles.CNBC
If you're saving for retirement and panicked by the volatility in the market, at least one pro questions your Street smarts. Get details, now.CNBC
SHANGHAI (Reuters) - Australia, Indonesia and South Korea skipped the launch of a China-backed Asian infrastructure bank on Friday as the United States said it had concerns about the new rival to Western-dominated multilateral lenders. China's $50 billion Asian Infrastructure Investment Bank (AIIB)…Reuters
CARACAS, Venezuela (AP) — The falling oil prices that are providing relief to drivers around the world threaten to bring more misery to the life of Milagro Alvarez and millions of other Venezuelans, whose country depends almost exclusively on oil revenue.Associated Press
WASHINGTON (Reuters) - Lockheed Martin Corp and U.S. defense officials have reached agreement on the terms of a contract worth about $4 billion for an eighth batch of 43 F-35 fighter jets, sources familiar with the deal said on Thursday. The contract will lower the cost of the radar-evading…Reuters
Oct. 24 (Bloomberg) -- A man, paralyzed after being attacked with a knife, is able to walk again thanks to stem-cell research. A team of scientists from the U.K. and Poland managed to take cells from the patients nose and ankle and repair the damagedcells in his spine. The professor who led the…Bloomberg
America needs more low-down-payment loans. The government agencies that drive most of the housing market are pushing for lower down-payment standards on mortgages, easing the 20 percent requirement that has become standard for much of the market. The Center for American Progress approves: “We…Bloomberg
The "Fast Money" traders share their top trades for next week.CNBC Videos
Two weeks after filing for bankruptcy, former Apple (AAPL) supplier GT Advanced Technologies (GTATQ), the company this morning announced that it has reached an agreement with Apple to “wind down” the sapphire production it had been operating for Apple in Mesa, Arizona and Salem, Massachusetts, and…Barrons.com
MOSCOW (AP) — The plane carrying a top French oil executive and a crew of three was already in the air when it grazed a snowplow, just failing to avoid the fatal crash, Russian crash investigators said Thursday.Associated Press
As the Federal Reserve prepares to end its third round of bond buying next week, the central bank plans to hang on to the record $4.48 trillion balance sheet it has accumulated since announcing the first round of purchases in November 2008. Holding bonds on the Fed's balance sheet limits the supply…Bloomberg
By Michael Vallo You don’t have to be an income investor to like dividend stocks, especially when they've been beaten down like Baker Hughes (BHI) and Oshkosh (OSK) have. Don Wordell only buys dividend-paying companies, and yet the RidgeWorth Mid-Cap Value Fund (SAMVX) yields less than 1%. Wordell…Barrons.com
Even if you don't owe some of the more than $1.2 trillion of student loan debt, you'll be affected by it. Here's why.CNBC
Your wallet should be an organizational tool...Business Insider
DALLAS (AP) — The Dallas hospital where a man diagnosed with Ebola died and two nurses were infected with the virus has seen patients flee the hospital, with a more than 50 percent decline in visits to its emergency room since the crisis began.Associated Press
Large manufacturers are increasingly moving production back to the United States from China, according to a new report by The Boston Consulting Group released Thursday. In the third annual survey of US-based senior executives at manufacturing companies with annual sales of at least $1 billion, the…AFP