Bond yields have been climbing behind everyone’s back whilst the parties lingered on but now the hangover is about to hit.Recall a few weeks ago we discussed the relationship between bonds and equities and the fact that rising yields mean falling equities?Watch this basic economic fact come in to play over coming weeks.
And if rising yields is not enough to contend with then add to that, the fact that we are entering one of the scariest seasons of the US trading year. Remember September 1987 and what other September dates come to mind?This is the USA “fall” and fall the markets do.The next three months are seasonally volatile and markets trend lower.
I am “long” Australian shares and happy to selectively maintain those positions showing strong weekly trends.But the US markets are a different story.I am not punting on a major “fall” out but enough to make “bear put spreads” that I have taken over the last couple of weeks start to looking quite healthy.
The Australian market demonstrated a mind of its own this week with two major rises on Thursday and Friday.On Thursday, July finished an excellent month with some standout performances.
Looking at the big picture sectors that I have covered in this newsletter over the last few weeks – sectors that shone are: Materials (up 10%), Energy (7%), IT (6%), Telecommunications (5%), Health (5%) and Consumer Discretionary (almost 5%).
In a couple of weeks I will review the sectors again to try and identify those sectors that can handle the long haul.I have a sense the coming month will reveal a different picture than we saw in July.