After a 5% pullback starting at the end of August, the market has had a few days of a bounce, explains Nell Sloane of Capital Trading Group.
Does that mean the market is back on its upward trend? No one can be sure, but I don’t think so. I tend to think we are getting close to the end of market euphoria, but I also don’t try to time the market. With markets at all-time high valuations, additional social infrastructure spending looking increasingly unlikely, and Congress members hating those of the other party and sometimes members of their own party, I don’t see a lot of things that would drive markets higher. Except, of course, that there is nothing else to invest in. At least for most people.
The market is in a condition it has never been in before. The measuring stick by which all other interest rates are measured is the 10-year Treasury. The interest rate, or yield, of a 10-year Treasury is currently 1.45%. The forecast for inflation over the next 10 years is about 2.4%. If this holds true, owning a 10-year Treasury would allow you to safely lose buying power at the rate of 1% per year. Why would anybody ever own something like that?
Corporate bonds, which are riskier, have an average yield of about 1.9%, meaning that you still come out negative. If you take even more risk and buy junk bonds, which are now called “high-yield bonds,” you can get up to about 4.44%, or 2% “real return” after inflation. But the price of junk bonds tends to follow stocks, so you’re getting the volatility of stocks while earning a 2% real return. Now is probably a bad time to put money in high-yield bonds since we are probably stretching the definition of “high-yield.” This seems to be the end of bonds as an investment vehicle, probably for the remainder of our lifetime as long as you’re old enough to read this.
Ultra-low interest rates means that we are rapidly seeing the disappearance of investment companies that would like to use your investment capital (i.e., money). There is just too much capital available at a very low borrowing cost, and this has changed the face of investing. It has all but eliminated income investments for most people who need a cash flow, which in turn forces more people into the stock market. I suspect this ultimately ends badly, but again, I don’t attempt to time the market or bet for or against it. As a firm, we try to find low-correlated asset classes and diversify in efforts to smooth volatility in our portfolios.
Stocks are not the only solution.
One option of alternatives is in managed futures programs. Most offer daily liquidity and daily transparency with overall low correlation to traditional stocks and bond portfolios. Futures trading is not suitable for all investors and past performance is not indicative of future returns.
Learn more about Nell Sloane by visiting Capital Trading Group
Futures trading is speculative and involves the potential loss of investment. Past results are not necessarily indicative of future results. Futures trading is not suitable for all investors. Nell Sloane, Capital Trading Group, LLLP is not affiliated with nor do they endorse, sponsor, or recommend any product or service advertised herein, unless otherwise specifically noted. The information contained herein was taken from financial information sources deemed to be reliable and accurate at the time it was published, but changes in the marketplace may cause this information to become outdated and obsolete. It should be noted that Capital Trading Group, LLLP nor Nell Sloane has verified the completeness of the information contained herein. Statements of opinion and recommendations, will be introduced as such, and generally reflect the judgment and opinions of Nell Sloane, these opinions may change at any time without written notice, and Capital Trading Group, LLLP assumes no duty or responsibility to update you regarding any changes. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Any references to products offered by Capital Trading Group, LLLP are not a solicitation for any investment. Readers are urged to contact your account representative for more information about the unique risks associated with futures trading and we encourage you to review all disclosures before making any decision to invest. This electronic newsletter does not constitute an offer of sales of any securities. Nell Sloane, Capital Trading Group, LLP and their officers, directors, and/or employees may or may not have investments in markets or programs mentioned herein.
