The bond market will lead the stock market (and not vice versa)

If anyone had taken the trouble to go and see what the markets were doing, they could not have failed to notice a clear and important recovery in prices, and this on all global markets, including Asia and China.
Then, looking around, he will certainly have thought that, after all, it was just a rebound.
And perhaps it couldn't be different, with the worsening of the serious crisis between Israel and Palestine, and the risk of a widening of the conflict; and again, with Moscow's war against Ukraine, still far from a solution almost two years after the conflict.
It's a rebound, no hope! But this time, for once, don't call it a rebound.
In fact, let's see why the one that began on Monday 30 October and continues with a certain vigor cannot be defined as a rebound: let's try to line up the data that moved the market and not just the stock market.
In fact, we find the strongest effect on the sharp drop in bond yields, starting from Treasuries up to our BTPs, without forgetting Corporate Inv.
Grade, i.e.
those assets that are mostly in the bond part of our portfolios, where the securities present in the funds have high ratings and solidity.
Without first mentioning that on Wednesday the FED chose not to proceed with a further increase, and the reference rates remain for now at the highest levels of the last twenty-two years, in the range between 5.25% and 5.50%.
For the future? It depends on the data that gradually comes out, but in any case, Jerome Powell has tried in every way not to increase expectations of a rate hike in December.
And this was perceived loud and clear by the market.
What does it mean? That it is very likely that there will be no further rate rises, but that these could remain at high levels for a longer period of time than expected.
At least this is the most widespread narrative.
Is it worth believing? It will depend on the data, no point making bets.
In fact, the data tell us about a strong US economy, therefore, first of all, those who thought a recession was certain should line up and now do an examination of conscience and a nice bath of humility.
After all, “If great investors like Warren Buffett and Ray Dalio make mistakes and everyone (including experts) is terrible at predicting the future, then what are the chances that you and I will get it right?” The data on the American economy that most of all prevented Powell from changing monetary policy were those on employment and wage dynamics.
Until now the USA has continued to create new jobs, the level of unemployment is at its lowest, and this good news however has an impact on inflation and, consequently, on monetary policy.
S&P500 futures jumped higher on Friday, after four sessions higher.
New jobs in the non-agricultural sector in the USA in the month of October amounted to 150,000 against expectations of 180,000, while in the private sector, compared to expectations for the creation of 145,000 new jobs, the figure was 99,000.
The global unemployment rate rises to 3.9% from the previous and expected 3.8, and the figure relating to the average hourly wages rises by 4.1%, slightly above the expectations of 4%.
What does it mean? That we are proceeding in the direction desired by the FED's monetary policy, with a visible economic slowdown also in terms of employment, and this is in line with the decreasing inflation data.
Just last Friday, 10Y Treasury yields were at maximum levels, around 5%, with negative effects on global governments.
To the news of the employment data, this was the reaction of the 10Y Treasury: And the 10Y BTP? It had almost reached 5%.
This was the news we were waiting for, and the bond market reaction was immediate, strong and clear.
I also believe that, even at this stage, the stock and bond markets may still be correlated.
If this aspect made us suffer in 2022, this time it could instead have positive consequences on both main assets of the portfolios.
Bond yields fall when there are purchases, and this is what is happening, with the curves no longer seeing the recession, they are flattening and, in the future, will hopefully return to a "normal" shape.
But in the presence of inflation, the equity component will benefit from it, remaining the most interesting asset today, and fueled precisely by the decline in bond yields.
In any case, it is my belief that, increasingly, the bond market will lead the share market, and not vice versa.
Even these dynamics, which are not exactly immediate, tell us that we are coming from complicated years, where all the rules seem to have been broken, and it may also make sense to ask: if assets are increasingly correlated, what is the point of diversification today? Well, this is a fundamentally important topic for me and it is also a subject of study.
We note that we come from a period of strong changes, and everything today must be observed in a different and critical light, everything can and will be questioned in the future.
How many times have I suggested – authentic financial advice – to be patient? Well, a series of data has flooded onto the market, the latest on American employment, which seems to have created the basis for a recovery of the stock and bond markets.
In a few days there will be the first effects on wallets.
The extraordinary thing is not so much the 6% of the S&P 500 compared to last Friday which was still a nice low for the period, and consequently we could only speak of a rebound.
The aspect that comforts me most is the net drop in bond yields, the component that has caused portfolios to suffer the most since November 2021, which will have positive effects for everyone.
That's why, at least this time, don't call it a rebound.
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