Investors who missed out on the now six year old bull market are most likely kicking themselves. While some may be thinking of putting money to work at these levels (near all-time highs), a risk off trade sent stocks lower on Friday sinking the Dow in the red last week.
Warning signs are starting to emerge. The Wall Street Journal reports junk bond prices have tumbled recently, as investors sold out of their positions at the fastest pace in a year. Investors pulled $2.38 billion from junk bond funds, and that came on top of $1.68 billion exiting the funds last week.
Movements in junk bond are watched closely as they tend to signal future moves in stocks. Selling indicates the risk-off trade is on, meaning a selloff in stocks could be coming.
Lincoln Ellis of Green Square Capital isn’t buying the selloff talk, yet. For him, it's hard to see a reason why stocks could head lower. In his mind, given recent new highs it might be “worth reminding viewers and investors that the virtuous feedback loop of global central bank gifted liquidity (and the expectation that it will continue) is really the mother’s milk of the rally.”
This could even continue when the Fed stops buying. “They’ve still quadrupled the size of the balance sheet thus pumping a huge amount of liquidity into the system thus fueling - this year - a rally in everything.”
What’s Ellis seeing in the longer term? Watch the attached video to get his additional thoughts on the Fed, and his new target level for the S&P 500 (^GSPC).
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