The TLT ETF Has Crashed 9% from Its Recent High. Here’s Why.

Despite the iShares 20+ Year Treasury Bond ETF ( $iShares 20+ Year Treasury Bond ETF(TLT)$ ) seeing a net inflow of $1.868 billion in October, the ETF has declined 1.84% so far this month.
While Fed rate cuts over the next year should trigger a bond market rally, the TLT has dropped approximately 9% since the Fed cut rates during the September FOMC meeting.

Source: Bloomberg, 27 Oct 2024

Trump Win Raises Inflation Risks:

Traders are now pricing in higher odds of a Trump victory, which could lead to soaring inflation due to his expansionary and trade policies. Consequently, FOMC rates may remain elevated for longer than expected.

Soft Landing/No Landing:

Economic data, including labor market metrics, retail sales, and PMI, indicate that the US economy is more resilient than anticipated. As a result, more investors are projecting a Soft Landing or No Landing scenario, lowering expectations for rate cuts.

Rerun of 1995:

The bond market is reacting similarly to the Fed's "insurance" rate cuts in 1995 amidst a resilient economy. The 10-year bond yield initially fell due to the 1995 rate cuts but later rose 27% from 5.52% in January 1996 to 7.05% in July 1996.

Conclusion:

The increasing risks of a soft landing and inflation continue to weigh on the TLT ETF. The bond market needs rising recession risks to reignite expectations for rate cuts.
While I recognize the benefits of bonds in a portfolio, I prefer stocks ( $SPDR S&P 500 ETF Trust(SPY)$ , $iShares Core S&P 500 ETF(IVV)$ , $Vanguard S&P 500 ETF(VOO)$ , $Invesco QQQ(QQQ)$ ) over bond during this earnings season, as I anticipate more earnings surprises.
So far, 37% of S&P 500 companies have reported their Q3 2024 earnings, with 75% showing a positive EPS surprise.

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S&P Target 6500? Is It Safe to Invest at High Levels?

With $.SPX(.SPX)$ recently surpassing the 6,000 point, major institutions have expressed optimism about the U.S. stock market's outlook for next year: Morgan Stanley: Set a base-case year-end 2025 target for the S&P 500 at 6,350 points, with a bullish scenario target of 7,400 points. ---------- Will you still invest in US stocks despite of high valuations and low risk premium? Can $.SPX(.SPX)$ hit 6500 as analysts suggest?

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Comments

GEDILLON
10-29
GEDILLON
So the thesis would depend on a supply shortage in ol driving the price up, feeding through to the economy due to higher manufacturing and transport costs. It is falls apart when oil prices are actually lower.
- Tiger_James Ooi:
  My thesis of a Trump win will reignite inflation is due to Trump's proposed tariff, immigration policy, and corporate rate cut. For example, Trump's proposed blanket 10% tariff on foreign imports, and a 60% tariff on all Chinese imports
emerson3366
10-28
emerson3366
Biden cuts domestic oil production by 300,000 barrels a day for two years that resulted in inflation...

all experts accept this , except a few radical left socialist ...
emerson3366
10-28
emerson3366
your analysis is not correct .... it's Biden policy of cutting oil production that leads to inflationary pressure... you are very wrong ....
1moredrink
10-28
1moredrink
I totally agree with you
popzi
10-28
popzi
Awesome analysis