A Tradable Bounce for US Equities?

By James Dondero | February 16, 2016

  • While stocks finished last week in the red the broad market averages closed strongly, which suggests the bulls may have wrestled the ball back from the bears. Market internals were also encouraging, showing roughly 50% fewer new 52-week lows than just a few weeks ago.
  • The reason for the strength was due to a long overdue bounce in the crude oil pits. While sentiment is still quite negative there is reason to believe oil’s lows may be in, and should crude stabilize it would likely benefit the bulls further.
  • The picture is much more mixed in the fixed income markets, where US Treasury bonds have benefitted from the market turmoil as investors have moved into safe havens. High yield credit on the other hand has not, and actually led the weakness in equities. Until spreads narrow meaningfully we continue to worry about the durability of equity rallies.
  • Overseas, both developed and emerging markets remain on weak footing, as many individual markets have broken important, long-term, support. Brazil, Russia, and China have led the way lower and now India, Germany and Japan appear to be playing catch-up.

 

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