- Stocks, bonds and commodities should speak with one voice.
- When they do, long term investors should listen.
- Right now, all three markets say: strong economy and full speed ahead.
Seeking Alpha readers know that I listen to the messages of markets instead of the gobbledygook of government bureaucrats in Washington.
Earlier this year the message was mixed: stocks rose, then fell, but have regained earlier highs. Gold was higher but has become weak, recently. Treasury bonds, whether indexed to inflation or not, have shown surprising strength.
If the economy was booming, there would not be this dissonance. Instead,
- stocks would be rising, expecting higher sales and profits;
- bonds would be falling, as demand for capital raises interest rates; and finally,
- gold would be falling, as higher rates raise carrying costs and drain away fright capital.
As a long term optimist and bull, I am glad to say these important pieces have fallen into place. First, stocks.
While both the Dow Jones Industrials ETF (NYSEARCA:DIA) and its broader cousin the S&P500 ETF (NYSEARCA:SPY) remain below highs set late last month, there is tremendous strength behind these moves, as is shown by the advance decline line for these ETFS. Look at the A/D line for the Dow Jones ETF, one of this years laggards:
Only a few weeks ago I mentioned the Dow Industrials lagging was a serious problem. Now this concern can be set aside for the near future. The a/d line for SPY is equally strong.
Even more solid proof the economy is getting stronger is shown in the chart below. Notice that treasury bonds (NYSEARCA:TLT), inflation indexed bonds (NYSEARCA:TIP), and gold (NYSEARCA:GLD) are all lower. But utilities, which also trade on their yield, are rising! Why? The latter offer the opportunity for dividend and yield growth: an opportunity that exists only if the economy is expected to grow.
The strength of the utilities is even better than it looks. Don't forget, XLU is a low risk portfolio so the fact that it is outperforming high risk assets like gold is especially noteworthy. In fact, gold prices seem to have completely dismissed their fears of a Ukrainian crisis, not surprising to my readers, given my earlier analysis.
Piece by piece, the case for a bear market in 2014 is being ripped to shreds. I'll address these other "pieces" in other articles in the near future.
Disclosure: I am long XLK, XLV, IHI, IYT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.