For the second week in a row, stocks were beaten down at the beginning and limped to a finish. It’s not the first time this has happened, and it certainly won’t be the last.
In August, I explored the correlation between Treasury bond yields and the stock market. You can check out that video by clicking here.
At that time, I examined bond yields and the rate of inflation. This week, we saw how bond yields can affect the stock market.
Is this a sign of a closer return to normalcy for stocks related to outside forces, like bond yields?
In this episode of The Bull & The Bear, I’ll explain how bond yields have had little impact on the broader market … until now … and what it means for stocks going forward.
The Burry Bet Against Bonds Is Paying Off
In that August video, I said that market maker Michael Burry — the subject of the film The Big Short — added a significant short position in the iShares 20+ Year Treasury Bond ETF (NYSE: TLT), which tracks the performance of long-term bonds.
He bet that inflation would continue to rise and that bond prices would push investors out of the market.
At the time, I said that Burry might be on to something with this short position and that bond yields would continue to rise.
TLT Share Price Falls As Bond Yields Rise
TLT’s share price has dropped more than 5% since hitting around $152 per share in early September.
Its relative strength index is also dangerously close to that 30 mark — a bearish signal for equity in technical analysis.
It means that Burry’s short position in the stock — ergo, his bet on bond yields and inflation continuing to rise — is paying off for now.
The Bull & The Bear
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Safe trading,
Matt Clark, CMSA®
Research Analyst, Money & Markets
Matt Clark is the research analyst for Money & Markets. He is a certified Capital Markets & Securities Analyst with the Corporate Finance Institute and a contributor to Seeking Alpha. Prior to joining Money & Markets, he was a journalist and editor for 25 years, covering college sports, business and politics.
