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This past week Bernanke spoke again but this time the market seemed to have liked what he had to say as we have hit new all time highs on most indices. He speaks again today so it will be interesting to see how the market reacts this time.
The Market Was Down Yesterday The Sky Must Be Falling
Yesterday the market sold off a bit and as I write this the futures are slightly down. I sometimes have CNBC on in the background and I heard a reporter ask a guest if he was still bullish given yesterday’s selloff. It always amazes me how people don’t understand that markets get overbought and oversold. After the rally we saw to start this month it is normal and healthy to see a bit of a selloff. It is also amusing how the media seems to try to make a big deal of each individual day. One day, unless the move is really significant, is essentially meaningless, it is the overall trend that matters.
Risk On is Back in Stocks
Almost un-noticed is what is going on in the NASDAQ. The other day it notched its 14th straight gain. If Apple hadn’t collapsed then the NASDAQ would be leading all US indices for the year.
Small Cap stocks are also starting to take some leadership in this rally (which is good because we have a lot of them). This could be because they have more exposure to US economic growth vs. Overseas economic growth, or it could be just part of a general flow to “risk on” trades.
Bonds Are Still Not the Place to Be
Bonds improved slightly this week but this is probably nothing more than:
1. Bonds being oversold
2. If the Fed is going to keep their zero interest rate policy than there is only so far up yields can go.
Some big brokerage firms are now advising clients to sell into bond rallies and Vanguard saw its first ever outflow of assets driven by a $7.4 billion outflow from the firm’s taxable bond funds and a $2.5 billion outflow from municipal bond funds. This gives you a clear view about what retail investors are thinking.