• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing

Pay Attention to the Bond Market for an 'All-Sell' Signal

The stock market is always the last to know.
By JIM COLLINS
Sep 15, 2022 | 01:00 PM EDT
Stocks quotes in this article: META

There is always a collective groan in the classroom when the teacher turns the lesson to a subject that no student likes. In that vein, sorry, but I need to talk about the bond market today. It has been absolutely awful this year. Let's look at the 12-month Treasury for a bit, and the St Louis Fed's excellent FRED database. The one-year chart is most telling.

A year ago the yield on the 12-month Treasury was 0.07%. Yesterday, as the FRED data is based on day-end closes, that yield was 3.92%. This morning the yield on the 1-year UST is quoted at 3.96%. Extraordinary stuff.

That's the world we live in. Interest rates have gone from zero-to-sixty in the US faster than Joe Biden pretending to drive an electric car at the Detroit Auto Show, as he did yesterday. But it is Biden's clueless cohorts at the Treasury and The Fed who have caused this spike in interest rates. "Inflation is transitory" was possibly the dumbest phrase ever uttered in Washington, a town known for dumb utterances.

The "floor" for interest rates has risen, and that makes any purchase that requires financing - cars, houses, etc. - more expensive at the margin. In the US economy we see fewer of them sold. Full stop. According to TD Economics:

Through the first eight months of the year, (U.S. light vehicle) sales have totaled 9.0 million units - down 15.3% from 2021's year-to-date measure.

Ouch. That's a recessionary contraction. That's where the U.S economy is sitting these days. A recession with elevated rates of inflation. Stagflation. That is bad for stocks, especially those that are perceived as growth names, especially Big Tech.

It's not too late to dump them. The joy I feel at seeing Meta Platforms (META) shares fall through $150 in today's trading (although they have recovered somewhat) and seeing that that stock fall to five-year lows is boundless. It couldn't happen to a nicer guy than Zuckerberg. Also, having been forced to sit through a clueless commentator on financial TV huffing the stock while wearing a pair of Oculus VR goggles this summer makes it even nicer.

But, how to preserve your capital? Well, I did introduce one of my many model portfolios to attack stagflation. PREFS has fallen 2.97% since inception, and that portfolio's 6.63% annualized yield (before reovestment) easily covers that stagger. That spreadsheet is free-to-all as it doesn't include the reinvestment trades, which I divulge behind the paywall at my site, www.excelsiorcapitalpartners.com, Honestly, the only excitement you will see from the 10 fixed-income names in PREFS is... a lack of excitement. That is exactly what you want when constructing a portfolio with the goal of capital preservation.

I will go to one more chart from the FRED database. As I always tell my clients, it is not the absolute level of rates, albeit they are incredibly contractionary now, to focus on, but it is the spreads. High-yield spreads, as measured by BoFA, have actually narrowed somewhat, and yesterday sat at 4.74%, after having jumped to 5.8% in June.

It's not Katie-bar-the door in the corporate fixed-income markets. There is still money to be made, cautiously, and via exposure to companies that are generating copious free cash flows, most of which are in the energy sector.

The teacher will end class now. It's not 2008, but growth stocks are going to keep getting hammered every time there is fresh data (like Tuesday's CPI print) showing that the inflation monster has not been tamed by the un-dynamic duo of Feckless Yellen and National Embarrassment Powell. So, bonds and preferreds are still attractive, relatively speaking, but keep an eye on the bond market for an "all-sell" signal. The stock market is always the last to know. It was in 2008... and no one wants to get a failing grade on their retirement nest egg.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Jim Collins had no position in the securities mentioned.

TAGS: Bonds | Economic Data | Economy | Federal Reserve | Interest Rates | Investing | Markets | Rates and Bonds | Stocks | Trading | Treasury Bonds

More from Investing

The Mask Gets Yanked Off of Goldilocks Narrative

James "Rev Shark" DePorre
Sep 21, 2023 4:29 PM EDT

The bulls' story always sounded like a stretch, and now they will have to develop a new narrative to help drive a recovery.

Holders of Discover Financial Are Discovering the Stock Is Heading Lower

Bruce Kamich
Sep 21, 2023 1:02 PM EDT

Let me show you what I am seeing and the key price levels to watch.

After Splunk Grab, Cisco's a Slam Dunk

Stephen Guilfoyle
Sep 21, 2023 11:54 AM EDT

I didn't like the idea of a cash deal at the start, but after going through the fundamentals, I think it's a wise move -- and here's why I'm adding the stock.

The Day After the Fed Meeting, I'm Gambling on This Stock

James "Rev Shark" DePorre
Sep 21, 2023 11:27 AM EDT

Here's why I like this gaming-related play, and why stocks could eventually offer some good entry points -- but not yet.

Darden Posts an Earnings Beat, But You May Want to Get Up From the Table

Bruce Kamich
Sep 21, 2023 10:46 AM EDT

Markets are a discounting mechanism.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 10:24 AM EDT BRUCE KAMICH

    This Could Get Messy

    A number of key stocks are getting close to import...
  • 01:41 PM EDT CHRIS VERSACE

    Latest AAP Podcast With Helene Meisler!

    Listen in as the Action Alerts PLUS podcast talks ...
  • 09:07 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    The Most Common and Costly Mistake in Investing
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login