Click on picture to enlarge
Many feel investors should “listen” to the message coming from Junk Bonds, due to them sometimes being a leading indicator for the stock market. The 2-pack above takes a look at the two largest Junk Bond ETF's. (JNK) and (HYG) could be breaking 5-year support, as they have been a little soft of late, while the S&P 500 has hit all-time highs. Another way to look at Junk Bonds is to look at yields versus prices.
The chart below comes from Federal Reserve of St. Louis.
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When yields started moving higher back in 2000 & 2007 (upper left chart), junk bonds and the S&P 500 turned soft. From 2011 to a few months ago, yields continued to fall, which is often a good message for stocks.
The lower right chart reflects that yields have recently turned higher, breaking above a falling resistance line. Are Junk Bond ETF's sending an early cautionary message to the stock market? I DO NOT believe that investors should adjust portfolios solely upon the action of junk bonds.
