Are US Market Internals Cause for Concern?

By Jim Dondero | August 3, 2015

  • US stocks moved slightly higher last week but still remain within their extremely narrow trading range. Market internals continue to flash a “yellow light” based on the continued erosion in breadth & leadership. Additionally, the ratio of High Yield Corporate Bonds to Treasuries (HYG/TLT) is also moving lower, which may reflect increased nervousness in the markets.
  • Speaking of US Treasuries, yields continue to struggle despite the widespread belief that the FOMC is likely to raise short term interest rates in September. Longer term interest rates however reflect the market’s expectations on inflation, and it is no surprise they are now slipping through their 40-week moving averages.
  • The reason being, the slide continued for commodities last week with both crude and copper again moving lower. While the trend remains down for now, we believe that prices will begin to normalize as we move closer and into 2016 and as U.S. production continues to decline.
  • Overseas, developed markets continued to outperform emerging markets as commodity-backed economies wrestled with these deflationary forces. India remains the bright spot, while indices in China are testing support and/or 40-week moving averages.

 

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