US Bonds
With a rating of 1 on the resilience scale, the US 10y Treasury yield
is somewhat vulnerable to declines. I expect this condition to remain in place
for the next few weeks. The Micro Market Resilience Index suggests resilience, while
the Macro and Exceptional Macro continue to suggest vulnerability.
Credit spreads – US corporate BBB less 10y Treasury yields – are
currently rated 0, suggesting that spreads will tend to narrow.
Consistent with the above, US high-yield bonds are rated 3, or highly
resilient. All else being equal, high-yield bond prices will tend to rise.
Bottom line: US bonds, in general, and high-yield issues, in
particular, will remain attractive investments over the next few weeks.
Developed Market Stocks
US Industrial stocks, as represented by the Dow Jones Industrial
Average, will continue to display moderate resilience over the next few weeks.
Stock prices may soften, but I do not expect dramatic declines. Portfolios
should maintain a positive exposure to US stocks as declines and subsequent
increases may be difficult to capture.
UK stocks are rated 3 and have been resilient for the last several
weeks. Qualitatively, they are getting a boost from the weakening UK currency.
I do expect resilience to fade over the next few weeks, with UK stocks becoming
more vulnerable to price declines.
European stock prices have a rating of 2, up from 1 in the prior
week.
Japanese stocks (not shown in graphic) also have a 0 rating, down from
1 the prior week. We should expect softness in Japanese stock prices.
Commodities
Overall, commodity prices are moderately resilient.
The S&P Goldman Sachs Commodity Index represents a basket of
commodities, with a high weighting in crude oil. The S&P GSCI has a rating of
2. Crude oil (not shown in graphic) has a rating of 3 this week..
Gold is resilient andhas a new rating of 2 this week, down from 3 the
prior week.
Emerging Markets
Emerging market stock and bond prices are rated moderately resilient
this week. At the moment, this appears to be a temporary breather because the
Macro and Exceptional Macro Market Resilience Indexes are both positive.
Chinese stocks, as represented by the Shanghai Composite, have a
rating of 0, which was a new rating last week. Prices will be vulnerable to
declines.
Currencies
The Dollar index DXY is rated 0 and is vulnerable to declines.
The Euro is rated 2, but may continue to appreciate because of the
positive Macro and Exceptional Macro ratings.
GBP is rated 1, which means it is somewhat vulnerable to declines. It
is not as vulnerable as it was a few weeks ago.
