Bond markets sold-off today in a slightly more alarming way than we’ve seen so far in 2019. This was accompanied by 11th straight trading session where stocks closed higher than they opened, as well as the best SP prices in more than a month. One of three things could be going on.
At face value, this is alarming. The first option is that all of the above is cause for concern. After all, we were worried about stocks and bonds reversing course in 2019 after the strong and correlated move in late 2018. This is the worst case scenario, but not necessarily a guaranteed scenario.
The 2nd option is that all of the above is a ‘false alarm.’ Perhaps stocks are overly optimistic about a trade deal. Perhaps markets are too smart for their own good thinking they know what will happen when the government shutdown ends. perhaps they’ve traded this knowledge (stocks and bond yields usually rise after a shutdown or other termination of fiscally-driven uncertainty).
The 3rd option strikes a balance between the first two. Perhaps this is all just as alarming as expected. Perhaps this is the 2019 correction that we were always likely to get and it had just been on hold due to fiscally-driven uncertainty, among other things.
Either way, we’ll be much more equipped to pick one of these options after the next few dominoes begin to fall. The first will simply be making it to other side of the upcoming 3 day weekend (MLK Day on Monday). The next two biggies will be the end of the shutdown and the resolution of US/China trade talks.