– By Charles Brown, M. Brown Financial Advisors, February 7, 2022
So much has already happened in the financial markets thus far in 2022, it’s hard to pick only a few charts that will help us understand what the rest of the year may bring. However, this five-year chart of the German 10-year government bond yield paints an interesting picture. German ten-year yields had a positive yield up until mid-2019 when the yield went negative. Why would anyone buy a negative-yielding bond? The rise of bond indexing and global governments purchasing their own bonds to stimulate growth would be great places to start. Regardless, we can see that yields hit a new low during the Covid panic of March 2020, but they have been rising since then.
As of today (1/31/22) the yield on the German ten-year bond is now POSITIVE – giving you a juicy yield of 0.014% per year. What this tells us is that global bond investors are starting to demand higher yields for their bonds. Why? Possibly to protect against rising global inflation. Or investors are selling these bonds before the big 3 central banks (Bank of Japan, European Central Bank and the US Federal Reserve) start to hike interest rates to fight the aforementioned inflation.
If the yield on these bonds climbs further into positive territory in 2022, it will be a sign that investors’ concerns about inflation and rate hikes are rising. If this yield falls meaningfully into negative territory again, it will tell us that investors concerns over global inflation are waning.
This next one is a five year chart of the S&P 500 Index* relative to the Nasdaq Composite Index*. We can see that over the past fivers that the S&P 500 was underperforming the Nasdaq Composite by a wide margin. Until early 2021, that is. The S&P 500 is now nicely outperforming The Nasdaq Composite over the last year.
What does this chart tell us? It tells us that a diversified basket of stocks and sectors have finally started to outperform the red-hot technology sector. This should mean that market sectors like industrials, energy and financials (all represented in the broadly diversified S&P 500 Index) are starting to perk up relative to technology. If this chart continues trending up in 2022, it will tell you that technology stocks are no longer the leaders in this market. If this chart reverses course and heads lower, it will tell you that technology stocks are the leaders once again.
* The S&P 500 and Nasdaq Composite are indexes – you can not invest directly in an index.
**The above article is informational in nature only and is not a recommendation to buy or sell securities. All information is gathered from sources believed to be reliable, but neither Charles Brown nor Ausdal Financial Partners, Inc guarantees the accuracy of the information. All investments carry a degree of risk. Individuals should consult with their tax and investment professionals before making changes to their investment portfolios.
***Securities and Advisory Services offered through Ausdal Financial Partners, Inc., an SEC registered investment adviser, member FINRA & SIPC. 5187 Utica Ridge Rd., Davenport IA 52807, 563-326-2064, www.ausdal.com. Sub-advisory services offered through M. Brown Financial Advisors, a registered investment adviser with the state of Illinois. M. Brown Financial Advisors is located at 2728 Forgue Drive, Suite 100, Naperville, IL 60564, 630-637-8600. M. Brown Financial Advisors and Ausdal Financial Partners are unaffiliated entities and only transact business in states where they are properly registered, or are excluded or exempt from registration requirements. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission or any state regulators. Ausdal Financial Partners, Inc. does not accept buy, sell or cancel orders by email, or any instructions by e‐mail that would require your signature. Information contained in this communication is not considered an official record of your account and does not supersede normal trade confirmations or statements. Any information provided has been prepared from sources believed to be reliable but does not represent all available data necessary for making investment decisions and is for informational purposes only.