Mirhaydari: Bonds Signaling Stock Trouble

“Stocks ended last week on a high note … driven by a batch of soft economic data, raising hopes that the Federal Reserve will be forced to delay its first rate hike since 2006 into the middle of 2016. Retail sales missed expectations. Industrial production and job openings were weak. We’ve also got the continuation of what’s expected to be a soft earnings season as a strong dollar and weak commodities prices weigh on profits.

“But while stocks are ebullient at the thought of the Fed’s 0 percent interest rate policy continuing into its ninth calendar year, the bond market is decidedly less bubbly. In fact, the fixed income market is sending a number of warning signals that a long and powerful credit cycle is ending. …

“[M]ore debt is becoming less and less beneficial to corporations. Older, high-yield debt has now mostly been replaced. … The feeling that we’re near the end of the road on all of this can be seen in the action in Wal-Mart (WMT) last week: Shares lost 11.8 percent in the three days through Friday after the company said fiscal 2016 sales would flatline and fiscal 2017 earnings per share would drop …

“When more debt-funded stock buybacks can’t juice the stock price, it’s time to get worried. Historically, when Wal-Mart’s share price collapsed, the broad market wasn’t far behind.”

— Excerpt contributed by Jason Kelly

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Z-val: Anthony Mirhaydari
Via: The Fiscal Times
Date: 10/19/15
Disposition: Short-Term Bearish
S&P 500 on 10/19/15: 2034
S&P 500 on 1/19/16: 1881
Change: -7.5%
Judgment: Right

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