Bond Market Records - An Alarm For Stock Buyers

According to the Bank of America Global Research, a historic event took place last week - a weekly inflow of funds to the bond market amounted to $23.6 billion. There has never been more money to the bond market in a week. If the situation develops in a similar vein, then by the end of the year the bond market may add another $1 trillion to the existing $10 trillion.

What is this news talking about? That investors are starting a global repositioning of assets - from volatile and high-risk stocks to more stable bond markets. They can be understood - the global economy is in real danger, and at the time of crises, stock markets are the most affected, but it is bond markets that show the maximum yield.

We give data on the latest major crises.

- crisis of 1980-82 (global economic crisis): return on the stock market amounted to (-16.52%), on the bond market + 21.61%;

- the crisis of 2001-2002 (dot-com bubble): the yield on the stock market was (-38.87%), on the bond market + 15.82%;

- the crisis of 2007-2209 (global financial crisis): the yield on the stock market was (-50.95%), on the bond market + 6.08%.

These figures are not confidential and professional investors are well aware of the specifics of the behavior of stock and bond markets in times of crisis. That is, a sharp influx of funds into the bond market suggests that rats are increasingly starting to flee the ship. By ship, of course, we mean the stock market.

Despite the fact that the Central Banks continue to pump money (since September 2019, the Central Banks poured about $ 800 billion into financial markets), as well as the era of ultra-low interest rates, capital flows are increasingly reaching the stock market.

"The last fool" will buy the latest shares, while power in the stock market will pass to sellers. The insider information from Bank of America also speaks in favor of this: their private clients continue to "quietly" sell out shares and buy bonds. In 2019, there was an outflow of funds from Bank of America customers from the stock market (worth about $ 200 billion), and according to forecasts for 2020, the trend will intensify. At the same time, investments in bonds continue to show a steady increase since 2015.

Recall that we consider 2019 the last year of unjustified growth in the US stock market. Already in 2020, it will begin to adjust. The scale of correction is from 50% and higher. Given that in recent years, shares of technology companies in the US stock market have grown by an average of 7-8 times (and some issuers have shown growth of 10 or even 20 times), the US stock market will no doubt become the object of massive sales. We recommend participating in this process, selling both the market as a whole (Nasdaq index) and the shares of individual issuers (Apple, Microsoft, Alphabet, Oracle, etc.).