Black Friday Sale on Risk Assets – Bonds Fly off the Shelves
Everything was upended on Friday following the discovery of a new coronavirus variant. Omicron was first identified in South Africa that appears to spread more quickly than the delta variant that caused a global wave of cases earlier in 2021. A risk-off mindset permeated global markets.
Stocks in Asia, Europe, and the U.S. closed sharply lower on Friday. Treasury Yields decreased on Friday (bond purchases drive the price up, but yield down), WTI crude futures dropped 12% (-9% for the week), and the CBOE Volatility Index spiked more than 50%. See the GoNoGo Chart below of $TLT which shows:
- Treasuries gapped and rallied on Friday amid the flight to assets viewed as safe havens
- GoNoGo Trend paints a strong blue “Go” bar as price gaps higher
- GoNoGo Oscillator is breaking through the zero line into positive territory
Before the Thanksgiving holiday, information technology stocks suffered as rising Treasury yields made expected corporate profits far in the future less valuable in today’s terms. US Equity markets were already experiencing a rotation into value stocks from growth stocks amid growing expectations for the Fed to be more aggressive in tightening policy.
Inflationary concerns have been further exacerbated by the October CPI report, which showed headline consumer prices increased 6.2% y/y – the fastest growth in prices since 1990. In addition, weekly initial unemployment claims (199,000) fell to their lowest level since Nov. 15, 1969 and wage growth reached 4.2%, the highest measure since Thanksgiving of 2007.
Going into this dramatic week, the narrowing leadership of the market rally was a measure of caution. Despite the volatility on Friday, the most prudent move traders and investors can make is to look at the weight of the evidence across asset classes and global markets. Welcome to your weekly chart pack review – Launch Conditions provides an objective view of trend conditions across global indices and asset classes. We hope this weekly review is a helpful part of your disciplined practice:
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