Volatility Hits Bonds and Equities

By Scott Poore, AIF, AWMA, APMA
Chief Investment Officer, Eudaimonia Group

Both equities and fixed income edged lower last week as volatility picked up.  Bond yields along the curve moved higher last week.  In fact, since the Fed cut rates back in September, the yield on the 10-year Treasury Bond is up 63 basis points and the interest rate on a 30-year Mortgage is up 45 basis points.  That's not exactly good news for the consumer.  We're continuing to see some ominous signs in market activity.  Gold and equities are moving higher at the same time, which is a rare occurrence.  We've also had back-to-back double-digit calendar years for equities.  A third consecutive double-digit year is rare for equities.  

Market breadth has begun to stall as concentrations and valuations appear out of whack.  The market cap of the largest stock relative to the 75th percentile of the index has exceeded the same measurement as in 2000 and 1932.  The top 10 names in the S&P 500 Index in 2000 made up more than 23% of the index.  Today, the top 10 holdings comprise more than 34% of the index.  If we think about that logically, among 500 different holdings, 34% of the index is affected by only 2% of its holdings.  Last week's Beige Book published by the Fed indicated that there was little-to-no pick up in economic activity.  Investors would be wise to adopt a sound diversification strategy and avoid trying to chase the "hot dot."

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Disclosures

The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.

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