Basically the stock market and bond market share correlation; when the bond market declines significantly, because the stock market is smaller than the bond market, money flows to either market depending on future opportunity. When the bond market enters these new legs of decline, no one knows the future opportunity? Because we do not know what rate the bond market will settle at when it bottoms.
In January, the bond market dropped from a yield of 2.4% to about 3%, and the stock market had a corresponding 10% drop in value, only to recover by June.
Below, you can see the bond market is starting another drop in yield from 3% in September to a little over 3.25% now; this has corresponded to a decline of about 3% in the S&P 500 thus far. We don’t know how far the bond market will decline, we just know a decline in the bond market is semi permanent where a decline in the stock market may last 3-6 months. We don’t know where the bottom is in the bonds, so we are not yet ready to do any buying, we think they should go to 3.5% or higher, but no one knows. We have high cash balances right now, and this was a big part of the plan to survive these kinds of declines.
This is no fun, but this is normal, and we strongly believe we are well positions to thrive on the other side of these declines.