Stocks Finish The Week On A Winning Note

Finally, Stocks Rally

Stocks were stuck in a rut this week. There were a bunch of failed rally attempts. It’s demoralizing to give up gains so often. It made some investors wonder if the correction was still ongoing. The bears were out in full force predicting the next bear market and recession even though there’s little data to support that claim other than the high Shiller PE which isn’t a timing mechanism. It’s funny how the calls for a melt up were prevalent in January after stocks had run up so much and predictions for a recession came in February after the market fell. It’s important to not be manipulated by the headlines and gurus who give predictions to get attention. Notice, how I didn’t say to fade them. Sometimes they are actually correct, making them useless. It would be useful if they were always wrong.

The S&P 500 was up 1.6% on Friday. Now the stock market is only down 4.37% from the all-time high. It usually takes about a month to recover from normal corrections. I’m still bullish on stocks for the near term and the rest of the year. Once the market gets to the all-time high, I’ll be neutral on the near term. It’s simply about buying low and selling high. As I said would happen, the VIX has collapsed. It was down 11.91% to $16.49. The exact time when the short volatility trade unwound was actually the time when it made sense to short volatility. There was a point where the VIX was pricing in a 2% move everyday for the next month. It didn’t take a genius to figure out that wasn’t going to happen, but it did take courageous conviction to act on the trade in the midst of the chaos.

The 10 year bond yield sold off again on Friday as it fell 5.47 basis points to 2.866%. This is going exactly as I predicted. I still think the yield will fall further in the next month. If you thought the stock market would rally because of this decline, you were rewarded. However, I think it’s a coincidence. At some point when corporate bonds sell off, there will be a decline in earnings because firms will need to spend more money to service their debt. However, that’s still not an issue just yet. I don’t believe there is a corporate debt bubble because debt to GDP isn’t an adequate measure now that firms are so expansive.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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