The Risk Appetite Of Stocks
Chris Ciovacco | May 21, 2018 04:06PM ET
The high-yield ETF (NYSE:JNK) pays a 6.02% dividend. The long-term Treasury bond ETF (NASDAQ:TLT) pays a 3.04% dividend. The 6.02% dividend is tied to instruments that have a higher risk of default. Defaults typically increase during recessions. The ratio JNK:TLT ratio below says a lot about the market's current perception of the economy and default risk. dividend. The 6.02% dividend is tied to instruments that have a higher risk of default. Defaults typically increase during recessions. The ratio JNK:TLT ratio below says a lot about the market's current perception of the economy and default risk.
The same "we are not overly concerned about a recession and rising default rates" look can be found in the high-yield (JNK) / intermediate-term Treasury (NASDAQ:IEF) ratio.
The growth-oriented small cap (NYSE:IWM) to more-defensive-oriented long-term Treasury bonds (TLT) ratio also tends to side with economic confidence rather than economic fear.
When markets are in an indecisive trading range, it can be difficult to get a handle on who is winning the ongoing battle between the bulls and the bears. This week's video provides some longer-term insight by comparing the NASDAQ (NASDAQ:QQQ) in 2018 to the major peaks in 2000 and 2007. The video also examines small caps IJR, energy XLE, global stocks VT), MLPs (NYSE:AMJ), growth stocks (NYSE:VUG) and dividend stocks (NASDAQ:DVY).
h3 Fear Of An Imminent Recession?/h3Since consumers tend to shy away from discretionary spending during recessions, but still buy toothpaste and soap, the XLY:XLP ratio tends to fall as economic fear increases. In the present day, the ratio tends to side with confidence over fear (see below).
h3 Moral Of The Story/h3
Get The News You Want
While there is nothing magical about the ratios above, they do contribute to the weight of the evidence. Presently, the weight of the evidence continues to slant in favor of economic confidence relative to economic fear. How long that will be the case falls into the TBD category, which is why under our approach, it is important to maintain a flexible, unbiased, and open mind.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.