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"This bond market signal indicates the bear market isn’t over yet" - CNBC ft. Longview Economics

11 May 2020

CNBC discusses a Longview analysis of the bond market and timing the end of the bear market


  • Stock markets have rallied in recent days, fueled by unprecedented monetary and fiscal stimulus from central banks and governments, and efforts to reopen economies following prolonged lockdowns.
  • In a note Monday, Longview argued that high-yield corporate bond spreads have signaled the end of every cyclical bear market since they started being recorded in 1997.

The price action of high-yield corporate bonds will signal to investors when the bear market triggered by the coronavirus pandemic is truly at its bottom, according to Longview Economics.

A bear market is a broad decline in a stock market, often defined as a price decline of 20% from a recent high. Sudden, sharp losses in stocks in early-to-mid-March took global stocks into bear market territory as the coronavirus pandemic spread worldwide and oil prices plummeted.

 

Stock markets have rallied in recent days, however, fueled by unprecedented monetary and fiscal stimulus from central banks and governments around the world, and the commencement of efforts to reopen economies following prolonged lockdowns. Markets have shrugged off dire economic indicators, such as the U.S. shedding a record 20.5 million jobs in April, suggesting that investors are beginning to see a case for a V-shaped recovery.

However, Longview economists believe this is too optimistic, in terms of the outlook for both earnings and GDP (gross domestic product). They expect the “current pandemic induced supply side shock to evolve into a demand side shock” in a more traditional recession.

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