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Market Update: 06-03-19

BOND MARKETS’ SIGNAL TO STOCKS

John Lynch Chief Investment Strategist, LPL Financial | Jeffrey Buchbinder, CFA Equity Strategist, LPL Financial

Should stock investors be concerned about the signals coming from the bond market? Trade tensions were the biggest reason stocks suffered their first down month of 2019 in May, but worrisome signals from the bond market contributed. This week we look at what the bond market signals mean for the stock market and examine the disconnect between the bond market and economic and stock market fundamentals.

WHY ARE YIELDS FALLING?

Before we look at what lower interest rates mean for stocks, let’s look at why they are so low in the first place. For one, inflation has been stubbornly low and will likely remain so based on market indicators of future inflation. The latest reading of the Federal Reserve’s (Fed) preferred inflation measure, the core personal consumption expenditures (PCE) index, was 1.6% in April, a fair amount below the Fed’s 2% target...

Download the complete PDF with graphs here.

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