Election and the Stock Market October started out surprisingly strong, with the market roaring into mid-month. Then the chop began, and the downslide.
As I write, the S&P 500 is rapidly heading back to the flat line for the month. Most of the strategies suffered as well, largely attributable to a failing bond hedge.
The Surge in Treasury Yields
Since the Federal Reserve cut short-term rates by half a percentage point on September 19, the 10-year Treasury yield has gone from 3.6% to 4.2%. Bond funds have an inverse relationship to yields. Case in point: TLT, the 20-year Treasury Bond ETF. Since that Fed rate cut, TLT has dropped 7%. That was not something the market was expecting, and most of our strategies were on the wrong side of that trade.
As I write, the S&P 500 is rapidly heading back to the flat line for the month. Most of the strategies suffered as well, largely attributable to a failing bond hedge.
The Surge in Treasury Yields
Since the Federal Reserve cut short-term rates by half a percentage point on September 19, the 10-year Treasury yield has gone from 3.6% to 4.2%. Bond funds have an inverse relationship to yields. Case in point: TLT, the 20-year Treasury Bond ETF. Since that Fed rate cut, TLT has dropped 7%. That was not something the market was expecting, and most of our strategies were on the wrong side of that trade.
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