European Junk Bonds Now Yield More Than U.S. Treasuries

The makeup of the S&P 500 is critical for measuring bottom up earnings. Because technology and energy were the drivers of profit growth in 2017, any change in the sector weighting would have a big impact on the results if it affected those two sectors.

Conclusion

It’s great to get an idea of where the junk bond market is going. I am of the belief that bonds are better at forecasting the economy than stocks because retail money isn’t involved in the debt market. Just looking at a couple indexes isn’t good enough when evaluating what junk bonds are signaling. Looking at which debt is doing poorly helps you figure out what the signal means. Secondly, the signal needs to be bigger than a few percentage points. This was a quite year, so a ripple makes the headlines. However, a ripple in junk bonds cannot catalyze a correction in stocks.

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