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Vanguard's McNabb Cautious On U.S. As S&P 500 Surges To A Record: Short Video & Text Presentation
HY Bonds are not confirming the recent uptick in the S&P 500. In fact they are indicating a pull back in equities.
The SP500 has rebounded from the May 17 one-day panic to push to a higher high. But high-yield bond ETFs like HIO are not confirming that higher high, and that’s a problem.
High yield bonds typically move in sync with the stock market rather than with T-Bonds. They are all about liquidity and default risk, much more so than inflation and other interest rates. So when liquidity starts to dry up, that condition often shows up first in the high-yield bond market. Eventually those liquidity problems come around to bite the rest of the stock market. So it is important to pay attention to these divergences.
This interview is over a year late. For those who have a sizable exposure to developed and emerging markets this year, their portfolio should be well rewarded.
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