Traders Eye Fixed Income

The S&P 500® is coming off one of the best years it’s seen in decades, the Dow Jones Industrial Average is knocking on the door of 30,000 after only 2 years in the 20,000 range and traders are unsure whether the party’s ever going to end.

While there’s no telling when the current rally might abate, a large contingent of cautious traders has started the New Year hedging some of the market’s euphoria by seeking exposure to fixed-income funds.

Direxion’s Daily 20+ Year Treasury Bull 3X Shares ETF (TMF) has experienced more than $20.5 million in net inflows in the initial weeks of 2020. Meanwhile, the broad market Direxion Daily S&P 500® Bull 3X Shares ETF (SPXL) has shed a net $45 million in that same span as traders locked in profits from the index’s stellar fourth quarter.

A Big Year for Growth (and Debt)

The fact that 2019 was a huge year for price gains in both equity and debt instruments puts bullish and bearish traders alike in an interesting position. While SPXL ended the year up more than 100%, Direxion’s two 3X fixed-income ETFs, the Direxion Daily 7-10 Year Treasury Bull 3X Shares (TYD) and TMF finished 2019 up 16.77% and 38%, respectively. What’s more, they often moved inverse to the SPXL, usually seeing some of their biggest moves as equities fell.

The price action in 2019 is in part thanks to three consecutive interest rate cuts from the Federal Reserve aimed at encouraging borrowing and staving off recessionary threats like slow global growth and the U.S- China trade war. While the cuts fueled borrowing among companies and enticed investors to maintain their exposures, they also pushed bond yields lower across the board and buoyed the price of existing bonds that come with a more attractive rate.

What’s more, the grim global outlook

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Here's how to tell a bear market is coming

A trader works at his post on the floor of the New York Stock Exchange, December 19, 2018.

Brendan McDermid | Reuters

Trying to time the market can be dangerous, but there are certain signals that the professionals look for when trying to gauge future risk in stocks which could be helpful for regular investors to monitor.

Bank of America Securities curated a “bear market signposts” list for clients to help predict when stocks might be close to embarking on a bear market. The list of 19 signals ranges from fundamental to sentiment-related indicators and uses data tracking back more than 50 years.

Currently 63% of the bear market signposts have been triggered, up from 47% in January. Since 1968, when 80% of the indicators are triggered, a bear market occurred, meaning stocks fell 20% from their most recent highs.

“Stocks appear to be pricing in more good news than bad,” Bank of America equity and quant strategist Savita Subramanian said in a recent note to clients.

The signposts list was almost triggered in October of 2018 when it hit 79%. The S&P 500 went on to briefly dip into bear market territory on an intraday basis following that signal, and suffered its worst December since the Great Depression. The Fed raising rates, as they did in 2018, is a trigger on the bear market signal list, as bear markets have always been preceded by the Fed hiking rates by at least 75 basis points from the cycle trough.

Here’s a full list of the bear market indicators from Bank of America:

  1. Federal Reserve raising interest rates
  2. Tightening credit conditions
  3. Minimum returns in the last 12 months of a bull market have been 11%
  4. Minimum returns in the last 24 months of a bull market have been 30%
  5. Low quality stocks outperform high quality stocks (over six months)
  6. Momentum stocks outperforming (over six to 12 months)
  7. Growth stocks outperforming (over six to 12 months)
  8. 5% pullback in stocks over the last year
  9. Stocks with low price-to-earnings ratio underperform
  10. Conference Board’s consumer confidence level has not hit 100 within 24 months
  11. Conference Board’s percentage expecting stocks go higher
  12. Lack of reward for earnings beats
  13. Sell side indicator, a contrarian measure of sell side equity optimism
  14. Bank of America Fund Manger Survey shows high levels of cash
  15. Inverted yield curve
  16. Change in long-term growth expectations
  17. Rule of 20, trailing price-to-earnings ratio added to CPI is above 20
  18. Volatility index spikes over 20 at some point within the last 3 months
  19. Earnings estimate revisions rule

Bearish signs to watch

Currently, if investors buy a 3-month treasury bill, they will be getting a higher yield than if they buy a 10-year treasury note. This is not normal. Typically, the more long term the holding period of the government security is, the higher the returns. This is a bond market phenomena called the inverted yield curve, which is known to precede recessions and sits as one of Bank of America’s bear market sign posts.

Another indicator that is currently triggered is muted price reactions for earnings beats this season. Stocks are getting their thinnest rewards for beating Wall Street’s estimates on earnings since the first quarter of 2018 and the third lowest level since 2000, according to Bank of America.

“Historically, small rewards preceded negative S&P 500 returns 60% of the time over subsequent quarters,” Subramanian added.

Stocks with low price-to-earnings ratios are also currently underperforming, flashing a bear market warning sign. Stocks with low PE ratios are generally considered undervalued and can be a good buying opportunity. When investors don’t buy into these cheap stocks it normally means they are crowding in high growth names. This means that the most expensive stocks are narrowly driving market returns.

Another flashing signal is tightening credit conditions, which occurs when it becomes harder to borrow money from the bank. In times of uncertainty or an economic slowdown, banks will tighten their lending taps to hedge for risk. Each of the last three bear markets started when a positive percentage of banks tightened lending standards. A recent Fed survey showed banks expected credit standards to tighten this year.

Bullish signs to watch

One indicator that remains at bay is Bank of America’s Fund Manager Survey recommended cash levels staying above 3.5%. Typically, when fund managers are not recommending positions in cash to clients, it’s bullish; however, Bank of America said it can be a contrarian measure of buy-side optimism. Therefore, since the current recommended cash position is above 4%, the signpost is not triggered.

A change in long-term growth expectations is another indicator that is currently not triggered. While stocks are off their recent highs due to worries about the Chinese coronavirus and companies like Apple and Coca-Cola downgraded their earnings expectations due to supply chain disruption, the consensus seems to be that the financial fallout of the virus will be short lived. Near-term pain is being acknowledged; however, Wall Street firms are optimistic growth will recover in the second half of 2020.

Another recent bullish signal is that consumer confidence in the U.S. grew more than expected in January as the outlook around the labor market improved. The Conference Board’s consumer confidence index rose to 131.6 this month from 126.5 in December. Economists polled by Dow Jones expected consumer confidence to rise to 128. Any reading below 100 signals a bear market could be coming.

When the Cboe Volatility Index, a commonly watched fear gauge, spikes above 20, it triggers another bear market warning sign. Despite coronavirus and U.S. presidential election uncertainty, the VIX sits below 17, which remains bullish for equities.

To be sure, while this method developed by the bank has a good track record, it’s always possible that different factors accompany the next bear market. And most professionals advise against trying to time the market based on technical factors such as these.

Still, it could be a helpful exercise for regular investors to go through this list in order to gauge how much risk they should be taking with their investments.

— with reporting from CNBC’s Michael Bloom.

Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.

Here's how to tell a bear market is coming

A trader works at his post on the floor of the New York Stock Exchange, December 19, 2018.

Brendan McDermid | Reuters

Trying to time the market can be dangerous, but there are certain signals that the professionals look for when trying to gauge future risk in stocks which could be helpful for regular investors to monitor.

Bank of America Securities curated a “bear market signposts” list for clients to help predict when stocks might be close to embarking on a bear market. The list of 19 signals ranges from fundamental to sentiment-related indicators and uses data tracking back more than 50 years.

Currently 63% of the bear market signposts have been triggered, up from 47% in January. Since 1968, when 80% of the indicators are triggered, a bear market occurred, meaning stocks fell 20% from their most recent highs.

“Stocks appear to be pricing in more good news than bad,” Bank of America equity and quant strategist Savita Subramanian said in a recent note to clients.

The signposts list was almost triggered in October of 2018 when it hit 79%. The S&P 500 went on to briefly dip into bear market territory on an intraday basis following that signal, and suffered its worst December since the Great Depression. The Fed raising rates, as they did in 2018, is a trigger on the bear market signal list, as bear markets have always been preceded by the Fed hiking rates by at least 75 basis points from the cycle trough.

Here’s a full list of the bear market indicators from Bank of America: Federal Reserve raising interest rates Tightening credit conditions Minimum returns in the last 12 months of a bull market have been 11% Minimum returns in the last 24 months

Read More Here...

Here's how to tell a bear market is coming

A trader works at his post on the floor of the New York Stock Exchange, December 19, 2018.

Brendan McDermid | Reuters

Trying to time the market can be dangerous, but there are certain signals that the professionals look for when trying to gauge future risk in stocks which could be helpful for regular investors to monitor.

Bank of America Securities curated a “bear market signposts” list for clients to help predict when stocks might be close to embarking on a bear market. The list of 19 signals ranges from fundamental to sentiment-related indicators and uses data tracking back more than 50 years.

Currently 63% of the bear market signposts have been triggered, up from 47% in January. Since 1968, when 80% of the indicators are triggered, a bear market occurred, meaning stocks fell 20% from their most recent highs.

“Stocks appear to be pricing in more good news than bad,” Bank of America equity and quant strategist Savita Subramanian said in a recent note to clients.

The signposts list was almost triggered in October of 2018 when it hit 79%. The S&P 500 went on to briefly dip into bear market territory on an intraday basis following that signal, and suffered its worst December since the Great Depression. The Fed raising rates, as they did in 2018, is a trigger on the bear market signal list, as bear markets have always been preceded by the Fed hiking rates by at least 75 basis points from the cycle trough.

Here’s a full list of the bear market indicators from Bank of America:

  1. Federal Reserve raising interest rates
  2. Tightening credit conditions
  3. Minimum returns in the last 12 months of a bull market have been 11%
  4. Minimum returns in the last 24 months of a bull market have been 30%
  5. Low quality stocks outperform high quality stocks (over six months)
  6. Momentum stocks outperforming (over six to 12 months)
  7. Growth stocks outperforming (over six to 12 months)
  8. 5% pullback in stocks over the last year
  9. Stocks with low price-to-earnings ratio underperform
  10. Conference Board’s consumer confidence level has not hit 100 within 24 months
  11. Conference Board’s percentage expecting stocks go higher
  12. Lack of reward for earnings beats
  13. Sell side indicator, a contrarian measure of sell side equity optimism
  14. Bank of America Fund Manger Survey shows high levels of cash
  15. Inverted yield curve
  16. Change in long-term growth expectations
  17. Rule of 20, trailing price-to-earnings ratio added to CPI is above 20
  18. Volatility index spikes over 20 at some point within the last 3 months
  19. Earnings estimate revisions rule

Bearish signs to watch

Currently, if investors buy a 3-month treasury bill, they will be getting a higher yield than if they buy a 10-year treasury note. This is not normal. Typically, the more long term the holding period of the government security is, the higher the returns. This is a bond market phenomena called the inverted yield curve, which is known to precede recessions and sits as one of Bank of America’s bear market sign posts.

Another indicator that is currently triggered is muted price reactions for earnings beats this season. Stocks are getting their thinnest rewards for beating Wall Street’s estimates on earnings since the first quarter of 2018 and the third lowest level since 2000, according to Bank of America.

“Historically, small rewards preceded negative S&P 500 returns 60% of the time over subsequent quarters,” Subramanian added.

Stocks with low price-to-earnings ratios are also currently underperforming, flashing a bear market warning sign. Stocks with low PE ratios are generally considered undervalued and can be a good buying opportunity. When investors don’t buy into these cheap stocks it normally means they are crowding in high growth names. This means that the most expensive stocks are narrowly driving market returns.

Another flashing signal is tightening credit conditions, which occurs when it becomes harder to borrow money from the bank. In times of uncertainty or an economic slowdown, banks will tighten their lending taps to hedge for risk. Each of the last three bear markets started when a positive percentage of banks tightened lending standards. A recent Fed survey showed banks expected credit standards to tighten this year.

Bullish signs to watch

One indicator that remains at bay is Bank of America’s Fund Manager Survey recommended cash levels staying above 3.5%. Typically, when fund managers are not recommending positions in cash to clients, it’s bullish; however, Bank of America said it can be a contrarian measure of buy-side optimism. Therefore, since the current recommended cash position is above 4%, the signpost is not triggered.

A change in long-term growth expectations is another indicator that is currently not triggered. While stocks are off their recent highs due to worries about the Chinese coronavirus and companies like Apple and Coca-Cola downgraded their earnings expectations due to supply chain disruption, the consensus seems to be that the financial fallout of the virus will be short lived. Near-term pain is being acknowledged; however, Wall Street firms are optimistic growth will recover in the second half of 2020.

Another recent bullish signal is that consumer confidence in the U.S. grew more than expected in January as the outlook around the labor market improved. The Conference Board’s consumer confidence index rose to 131.6 this month from 126.5 in December. Economists polled by Dow Jones expected consumer confidence to rise to 128. Any reading below 100 signals a bear market could be coming.

When the Cboe Volatility Index, a commonly watched fear gauge, spikes above 20, it triggers another bear market warning sign. Despite coronavirus and U.S. presidential election uncertainty, the VIX sits below 17, which remains bullish for equities.

To be sure, while this method developed by the bank has a good track record, it’s always possible that different factors accompany the next bear market. And most professionals advise against trying to time the market based on technical factors such as these.

Still, it could be a helpful exercise for regular investors to go through this list in order to gauge how much risk they should be taking with their investments.

— with reporting from CNBC’s Michael Bloom.

Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.

Read More Here...

New Coronavirus Cases In Iran Strikes Fear In Markets Sinking Stocks And Spiking Metals ETFs

Stocks fell again on Friday after continuing fears over the coronavirus, which has spiked volatility.

While the virus has largely been concentrated in China, the World health officials said Friday the COVID-19 coronavirus outbreak has extended to Iran, where health officials confirmed 18 new cases and 4 deaths in just two days, which is “very worrisome.”

Earlier in the day, Iran confirmed 13 new coronavirus cases, raising its national tally to 18. Seven people with the flu-like virus were diagnosed in Qom, four people in Tehran and two in Gilan.

The thus far modest contagion in Iran has been tied to a case in Canada and another infection of a 45-year-old woman in Lebanon after those patients traveled to the Middle East nation.

“The cases that we see in the rest of the world, although the numbers are small, but not linked to Wuhan or China, it’s very worrisome,” Tedros Adhanom Ghebreyesus, director-general of the World Health Organization, said Friday at a news conference at the agency’s headquarters in Geneva. “These dots are actually very concerning.”

Health officials are receiving information about the patients in Iran, but “we have to engage them even more,” Tedros said.

World health officials still have the opportunity to contain the virus, he said, but that likelihood is decreasing every day.

“The window of opportunity is still there, but our window of opportunity is narrowing,” he said. “We need to act quickly before it closes completely.” He also cautioned: “This outbreak could still go in any direction.”

Outside of China, there are 1,152 cases across 26 countries and eight deaths, Tedros said.

The Dow Jones Industrial Average traded as much as 316 points lower as of 11 A.M. EST, or 1.1%, to break below 29,000 for the first time since Feb. 10. The S&P 500 as fell 1.1% as

Read More Here...

New Coronavirus Cases In Iran Strikes Fear In Markets Sinking Stocks And Spiking Metals ETFs

Stocks fell again on Friday after continuing fears over the coronavirus, which has spiked volatility.

While the virus has largely been concentrated in China, the World health officials said Friday the COVID-19 coronavirus outbreak has extended to Iran, where health officials confirmed 18 new cases and 4 deaths in just two days, which is “very worrisome.”

Earlier in the day, Iran confirmed 13 new coronavirus cases, raising its national tally to 18. Seven people with the flu-like virus were diagnosed in Qom, four people in Tehran and two in Gilan.

The thus far modest contagion in Iran has been tied to a case in Canada and another infection of a 45-year-old woman in Lebanon after those patients traveled to the Middle East nation.

“The cases that we see in the rest of the world, although the numbers are small, but not linked to Wuhan or China, it’s very worrisome,” Tedros Adhanom Ghebreyesus, director-general of the World Health Organization, said Friday at a news conference at the agency’s headquarters in Geneva. “These dots are actually very concerning.”

Health officials are receiving information about the patients in Iran, but “we have to engage them even more,” Tedros said.

World health officials still have the opportunity to contain the virus, he said, but that likelihood is decreasing every day.

“The window of opportunity is still there, but our window of opportunity is narrowing,” he said. “We need to act quickly before it closes completely.” He also cautioned: “This outbreak could still go in any direction.”

Outside of China, there are 1,152 cases across 26 countries and eight deaths, Tedros said.

The Dow Jones Industrial Average traded as much as 316 points lower as of 11 A.M. EST, or 1.1%, to break below 29,000 for the first time since Feb. 10. The S&P 500 as fell 1.1% as

Read More Here...

New Coronavirus Cases In Iran Strikes Fear In Markets Sinking Stocks And Spiking Metals ETFs

Stocks fell again on Friday after continuing fears over the coronavirus, which has spiked volatility.

While the virus has largely been concentrated in China, the World health officials said Friday the COVID-19 coronavirus outbreak has extended to Iran, where health officials confirmed 18 new cases and 4 deaths in just two days, which is “very worrisome.”

Earlier in the day, Iran confirmed 13 new coronavirus cases, raising its national tally to 18. Seven people with the flu-like virus were diagnosed in Qom, four people in Tehran and two in Gilan.

The thus far modest contagion in Iran has been tied to a case in Canada and another infection of a 45-year-old woman in Lebanon after those patients traveled to the Middle East nation.

“The cases that we see in the rest of the world, although the numbers are small, but not linked to Wuhan or China, it’s very worrisome,” Tedros Adhanom Ghebreyesus, director-general of the World Health Organization, said Friday at a news conference at the agency’s headquarters in Geneva. “These dots are actually very concerning.”

Health officials are receiving information about the patients in Iran, but “we have to engage them even more,” Tedros said.

World health officials still have the opportunity to contain the virus, he said, but that likelihood is decreasing every day.

“The window of opportunity is still there, but our window of opportunity is narrowing,” he said. “We need to act quickly before it closes completely.” He also cautioned: “This outbreak could still go in any direction.”

Outside of China, there are 1,152 cases across 26 countries and eight deaths, Tedros said.

The Dow Jones Industrial Average traded as much as 316 points lower as of 11 A.M. EST, or 1.1%, to break below 29,000 for the first time since Feb. 10. The S&P 500 as fell 1.1% as

Read More Here...

New Coronavirus Cases In Iran Strikes Fear In Markets Sinking Stocks And Spiking Metals ETFs

Stocks fell again on Friday after continuing fears over the coronavirus, which has spiked volatility.

While the virus has largely been concentrated in China, the World health officials said Friday the COVID-19 coronavirus outbreak has extended to Iran, where health officials confirmed 18 new cases and 4 deaths in just two days, which is “very worrisome.”

Earlier in the day, Iran confirmed 13 new coronavirus cases, raising its national tally to 18. Seven people with the flu-like virus were diagnosed in Qom, four people in Tehran and two in Gilan.

The thus far modest contagion in Iran has been tied to a case in Canada and another infection of a 45-year-old woman in Lebanon after those patients traveled to the Middle East nation.

“The cases that we see in the rest of the world, although the numbers are small, but not linked to Wuhan or China, it’s very worrisome,” Tedros Adhanom Ghebreyesus, director-general of the World Health Organization, said Friday at a news conference at the agency’s headquarters in Geneva. “These dots are actually very concerning.”

Health officials are receiving information about the patients in Iran, but “we have to engage them even more,” Tedros said.

World health officials still have the opportunity to contain the virus, he said, but that likelihood is decreasing every day.

“The window of opportunity is still there, but our window of opportunity is narrowing,” he said. “We need to act quickly before it closes completely.” He also cautioned: “This outbreak could still go in any direction.”

Outside of China, there are 1,152 cases across 26 countries and eight deaths, Tedros said.

The Dow Jones Industrial Average traded as much as 316 points lower as of 11 A.M. EST, or 1.1%, to break below 29,000 for the first time since Feb. 10. The S&P 500 as fell 1.1% as

Read More Here...

New Coronavirus Cases In Iran Strikes Fear In Markets Sinking Stocks And Spiking Metals ETFs

Stocks fell again on Friday after continuing fears over the coronavirus, which has spiked volatility.

While the virus has largely been concentrated in China, the World health officials said Friday the COVID-19 coronavirus outbreak has extended to Iran, where health officials confirmed 18 new cases and 4 deaths in just two days, which is “very worrisome.”

Earlier in the day, Iran confirmed 13 new coronavirus cases, raising its national tally to 18. Seven people with the flu-like virus were diagnosed in Qom, four people in Tehran and two in Gilan.

The thus far modest contagion in Iran has been tied to a case in Canada and another infection of a 45-year-old woman in Lebanon after those patients traveled to the Middle East nation.

“The cases that we see in the rest of the world, although the numbers are small, but not linked to Wuhan or China, it’s very worrisome,” Tedros Adhanom Ghebreyesus, director-general of the World Health Organization, said Friday at a news conference at the agency’s headquarters in Geneva. “These dots are actually very concerning.”

Health officials are receiving information about the patients in Iran, but “we have to engage them even more,” Tedros said.

World health officials still have the opportunity to contain the virus, he said, but that likelihood is decreasing every day.

“The window of opportunity is still there, but our window of opportunity is narrowing,” he said. “We need to act quickly before it closes completely.” He also cautioned: “This outbreak could still go in any direction.”

Outside of China, there are 1,152 cases across 26 countries and eight deaths, Tedros said.

The Dow Jones Industrial Average traded as much as 316 points lower as of 11 A.M. EST, or 1.1%, to break below 29,000 for the first time since Feb. 10. The S&P 500 as fell 1.1% as

Read More Here...