The Goldman Selloff...and Rebound

The short-term market has already digested the Goldman news and isn’t phased. [Stocks have gone nowhere but up since the Goldman “scare” on Friday. A wave of good earnings announcements bumped up the S&P 500 another 0.8% yesterday, which has almost entirely recouped Friday’s losses.] For proof, I’ve been watching the relationship between 30-year Treasury Bond futures and the S&P 500.

During times of market instability and uncertainty, Treasuries are bought as protection and safe haven investments – if stocks go down bonds go up and vice versa. During the financial crisis stock sell-offs from 2008-2009, the Dubai debt issue and, most recently, the Greece default concerns, bonds rallied as a knee-jerk reaction. The flow of money from stocks into bonds illustrates a lack of confidence in the equity markets.

After the midday sell-off Friday, bonds failed to make new relative highs, signaling less fear as the session moved to the close. Stock price action Monday was positive and Treasuries have remained below the recent highs for now – all clues that the worst may be over for now.

Alan Knuckman
for The Daily Reckoning