Why is STOCKS RISING but BONDS FALLING ??

NJC
2023-09-26

Main indexes like the ‌$S&P 500(.SPX)$  ‌,‌$DJIA(.DJI)$  ‌,‌$NASDAQ(.IXIC)$  ‌‌were up around 0.4% in Monday's trading hour. Despite this, the bond markets were down, with the treasuries above 3 years consistantly in the red. ( When bond prices fall, bond yield rise ). The picture below (Data from home.treasury.gov) illustrates that majority of the bonds are in the red with the anomaly being 4 months, 1 year and 3 year treasury bond. 


(the change: part i added myself)


This is quite unusual because both stock prices and bond prices should move in tandem as they are both correlated with how the economy is performing, and they are both forward looking. However, in my opinion, the main reasons for this phenomenon is because of an increase in demand for stocks, caused by Amazon's $4Billion investment into Anthropic, causing the stock market to be yet again be hopeful about theeconomy and the rationale behind it being "if such a big company is willing to invest such a big sum of money right now, does it mean that the future outlook of the economy is not as bad as we think ?" However, such a news have a bigger impact on the stock market than the bond market especially because Amazon is a big company and its stock price movements can affect index movements as well.

In addition, there was also some negative news for the bond market, including Moody's warning that the US government shutdown is bad for the country's credit, which made many bond investor fear another downgrade by Moody's after the downgrade by Fitch from AAA to AA+ rating. This is also the reason as to why shorter term treasuries are not affected so much as the market believes the downgrade won't come so fast and shorter term treasuries won't be affected, however, long terms ones are at risk of sitting through a downgrade before its maturity, hence a drop in price. 

Additionally, alot of bond investors are also pilling into money market funds which are sometimes known as money market mutual funds as they are about as safe as treasuries but yield higher return than treasuries now as they diversifies their investments into short term money market instruments like repo, reverse repo, bills, commercial papers among others.

Lastly, FED Kashkari have also came out today and say that he expect there will be one more hike coming since the economy and consumer is still quite strong. Alongside this, Jerome Powell will also be giving his speech on Friday at 4am Singapore time. It is expected that he will reiterate his statement of 'higher for longer rates' and potentially anything that the market is not expecting will be taken as negative catalyst, I believe that both the bond market and stock market have priced this event in as negative catalyst.


In summary, there is quite alot of negative catalyst for the stock market and the bond market, however, there no positive catalyst for the bond market which was why the bond market is down when the stock market is up slightly.

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Comments

  • MatthewWalter
    2023-09-26
    MatthewWalter

    Why is the dollor not in sync with Spx? If the dollor goes up spx should be down but they’re both going up at the same time or down at the same time that’s weird

  • MyrnaNorth
    2023-09-26
    MyrnaNorth

    Stock market is only down 10% from it's all time high and bulls are complaining about bears. Totally irrational.

  • BaronLyly
    2023-09-26
    BaronLyly

    I am aware that continuing to invest in period of volatility can be a Smart way to build wealth

  • littlesweetie
    2023-09-26
    littlesweetie

    OPPORTUNITY to buy and cash in all the missed opportunity in the last October lows??

  • EmilyMark
    2023-09-26
    EmilyMark

    No matter what happens to interest rates, I don't like the risk-reward of the index

  • Supti
    2023-09-26
    Supti

    Nice 

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