European political and economic fears continue to plague the U.S. equity markets. The S&P 500 has dropped 50 points since last week on France and Greek elections, U.S. economic fears, and continuing debt fears around the globe. Fears that the U.S. may be entering a soft patch as also sent money moving into the bond market and out of risk on assets.
Bond Market- The bond market has seen consistent inflows as global economic worries continue to dominate the headlines. Although U.S. treasuries are yielding very low interest rates, investors and traders flock to them to capture at least some yield.
I personally believe that inflows into the bond market should taper off in the next few years and we could enter a bear market in bonds. As the U.S. gradually recovers, the fed will have to raise interest rates, and investors will flock to riskier assets.
Stock Market- The U.S. equity market has been seeing outflows in the past two weeks as global economic fears have seeped into riskier assets. Although the U.S. stock market may be the safest place to put money in global equities, it too is risky enough to cause selling.
I think we should see a further sell off in the next few weeks in the U.S. stock market as global fears are too great right now. Technically, we are also overbought and so I expect to see a sell off to shake out the weaker longs. After the pullback is complete however, I think we should see another rally in equities as the central banks continue to support them.'
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