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
Led by Adam O’Dell and a team of finance journalists, traders and experts, Money & Markets gives you the information you need to protect your nest egg, grow your wealth and safeguard your financial well-being.
Be sure to also subscribe to our YouTube channel for more videos like my weekly Marijuana Market Update. You can find more investing insights from Adam and Green Zone Fortunes co-editor Charles Sizemore in our Ask Adam Anything and revamped Investing With Charles videos, respectively.
Have something you want us to talk about? Email email@example.com and give us your thoughts.
Check out moneyandmarkets.com, and sign up for our free newsletters that deliver you the most important and unbiased financial news, commentary, and actionable advice.
Also, follow us on:
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.