Vanguard Total Bond Market ETF

Despite the markets hitting record highs, not many fund managers are in an optimistic mood.

The overall investor sentiment has been bearish given the US-China trade tensions and deteriorating economic reports. In addition to bonds (BND), investors are also looking to gold due to its safe-haven appeal. Not only this, there are many other factors that are currently going in gold’s favor.

According to the latest Bank of America Merrill Lynch survey, government bonds are the most crowded trade. It is the first time in the history of BAML that the preference for Treasuries has topped the list. The US government bonds were cited by 27% of the fund managers, topping long tech trade, which came at the second position.

Bank of America Merrill Lynch conducted a survey that polled 230 global investors with $645 billion in total assets under management between June 7 and June 13. The asset allocation of fund managers implies recessionary conditions.

Jeffrey Gundlach was surprised when the Fed switched to a dovish stance and predicted no hikes this year, and he thinks that change is “not reassuring.”

Jeffrey Gundlach believes that weakness is evident in US economic indicators.

Jeffrey Gundlach recommended investors take advantage of the volatility in interest rates at the recent Sohn Conference.

In terms of bonds (BND) (AGG), Gundlach has time and again mentioned that there is high-grade corporate debt.

Jeffrey Gundlach believes that if the equities do well this year, emerging market equities will do better than US stocks (SPY) (DIA).

On April 5, the US jobs report was released, and the data came as a relief to the markets.

While job additions in March topped analysts’ estimate of 175,000, coming in at 196,000, wage growth came in below expectations.

In February’s job report, while job additions came in substantially weaker than the economists’ expectations of 180,000 at just 20,000, the wage growth and unemployment rate came in strong.

BMO chief economist Tom Porcelli discussed his take on the current yield inversion and the implications for the markets.

After the yield curve inverted on March 22, market concerns about the global slowdown and a potential recession have multiplied.

Today, another round of trade talks started in Beijing.

The Conference Board updated the US consumer confidence index yesterday. The confidence index hit a 16-month low at 124.1 in March.

Morgan Stanley (MS) equity strategist Michael Wilson said that investors should “remain defensively positioned,” as last week’s yield curve inversion was bearish for stock markets (DIA) (IVV).

Another factor that added to the downward pressure on yields came after the Fed’s more-dovish-than-expected take on future rate hikes.

The Treasury yield curve turned negative on March 22. The ten-year yield fell below the three-month yield for the first time since 2007.

In Bank of America Merrill Lynch’s March 2019 survey, the slowdown in China was cited as the biggest tail risk by the majority of respondents.

Jeffrey Gundlach is very concerned about the increasing debt in the US economy.

In December, Gundlach said, “I’m pretty sure this is a bear market.” He pointed out that even FAANG stocks—Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX), and Google (GOOGL)—were in or near a bear market.

After being asked about the timing of the next recession during his interview with Yahoo Finance, Jeffrey Gundlach said that while the global stock market (ACWI) peaked on January 26, 2018, US markets (SPY) hung on until October.

Jeffrey Gundlach has long been warning markets about the risk that excess leverage in the system poses.

In Bank of America Merrill Lynch’s February 2019 survey, trade war concerns remained the top tail risk cited by global fund managers for the ninth consecutive month.

Gold’s price saw its fourth consecutive positive monthly return in January. It rose ~3% in the month after its rise of 4.9% in December.

The Department of Labor (VTI) is scheduled to release the January employment data on February 1.

As reported by CNBC, according to the Bank of America Merrill Lynch survey for January, hedge fund managers’ chief concern is corporate leverage.

Credit Suisse slashed SPY’s target for the end of 2019 from 3,350 to 2,925 in December. The previous target was the most bullish outlook.

As reported by Reuters, Jeffrey Gundlach called the ballooning US (SPY) (VOO) federal government debt “a completely horrific situation.”

Currently, one of the questions on the minds of most investors is whether we are entering a recession.

Jeffrey Gundlach expects 2019 to continue to be a volatile year. The last quarter of 2018 was quite volatile after a prolonged calm in the markets.

The non-farm payrolls for the US (IVV) (QQQ) were 155,000 in November, which underwhelmed economists’ consensus of 198,000.

The US Department of Labor (VTI) is set to release December employment data on January 4.

A major factor weighing on gold prices this year was the Fed’s tightening cycle.

In contrast to Bank of America Merrill Lynch’s bullish view on gold (GLD) in 2019, JPMorgan Chase (JPM) expects gold (NUGT) and silver’s (SLV) performance to remain to lukewarm—at least in the first half of 2019.

Goldman Sachs (GS) turned positive on gold (GLD) for the first time in more than five years back in March.

Jim Paulsen, The Leuthold Group’s chief investment strategist, thinks that after the ugly December for markets, investors’ panic is in the later stages.

While talking to CNBC in September, Ray Dalio said that investors should get “more defensive” in the stock market, and warned that stocks’ upside looks limited.

Another concerning statistic that came to light during the Bank of America Merrill Lynch’s Fund Manager Survey was that investors made the largest ever one-month rotation into bonds (BND).

Talking to CNBC, “bond king” and DoubleLine CEO Jeffrey Gundlach said of the Federal Reserve, “I think they shouldn’t raise [rates] this week.”

Among investment banks, Goldman Sachs (GS) and J.P. Morgan (JPM) are most aggressive on the Fed’s rate hike outlook for 2019.

The Federal Reserve is set to meet December 18–19 for its last policy meeting of the year.

The yield curve tracks the yields of Treasury securities maturing at different times. For example, the yield of two-year securities (SHY) is usually lower than that of ten-year securities (IEF)(TLT).

The US dollar (UUP) has been on an upward trajectory in 2018 so far. Year-to-date, it’s up ~7.4% compared to other major global currencies.

During an investor webcast on December 11, DoubleLine CEO Jeffrey Gundalch painted quite a bearish picture of stocks, bonds, and the US economy (SPY)(DIA).

DoubleLine CEO Jeffrey Gundlach said that the current inversion of the yield curve could signal that the US “economy is poised to weaken.”

The yield curve mainly reflects bond market investors’ expectations of the Fed’s actions and future economic conditions.

A yield curve tracks the yields of Treasury securities maturing at different times.

The demand for gold in India (INDA) was lukewarm in the first half of the year, mainly due to stronger equity markets and higher gold prices measured in rupees.

Central banks have been net buyers of gold (SGOL) since the beginning of the financial crisis of 2008.

Whether the recent sell-off in the bond and stock markets is just a blip or the beginning of a sustained downward rally will depend on the upcoming US economic data.

On October 3, US bond yields (BND) soared due to a bond sell-off. The sell-off continued on October 4, though at a slower pace.

When the yield curve (BND) inverts, it means that the yields of shorter-duration securities become larger than those of longer-term securities.

The unemployment rate for July fell 0.1% sequentially to 3.9%, its lowest point in nearly 18 years.

A yield curve tracks the yields of Treasury securities maturing at different times.

While most Fed officials agreed on rates and trade concerns, there was disagreement among them regarding the significance of the yield curve.

The rupee has depreciated by ~7.0% year-to-date against the US dollar. This event caused local gold prices to rise.

The greatest conundrum in the whole jobs report remains the wage growth. Wages haven’t picked up like they should have.

The unemployment rate for June increased to 4.0% from a low of 3.8% in May, which was an 18-year low.

A record number of fund managers in the BAML (Bank of America Merrill Lynch) July survey believe that gold is undervalued.

It doesn’t come as a surprise that Wall Street is concerned about a potential slowdown, as the spreads have significantly narrowed between the two-year and ten-year Treasury yields.

Rising interest rates increase the cost of owning a home for prospective buyers, but the housing market hasn’t yet felt the impact of rate increases.

The US bond market continued to rebound as trade tensions and the limited appreciation in equity markets pushed demand for bonds higher, depressing the bond yields for a second consecutive week.

According to the June 21 Conference Board report, the May LEI was 109.5—a 0.2% increase from the revised April LEI of 109.3.

In March and April, several foreign governments reduced their US debt holdings—including T-bills—by $47.6 billion.

There is one economic measure at China’s dispense that could force the Trump administration to back away from its aggressive trade policy.

The US bond market had a limited reaction to the Fed’s 25-basis-point rate hike and the 0.20% increase in interest paid on excess reserves.

The PPI for final demand in May is reported to have increased by 0.5% month-over-month.

As expected, the Federal Reserve increased the interest rate by 25 basis points after its June meeting, which concluded on June 13.

During the Fed’s May meeting, the inflation (TIP) target was described as “symmetric,” suggesting that the 2% target would not be used to initiate any dramatic changes to US monetary policy.

The central banks of the US, EU, and Japan are scheduled to meet this week.

The US bond market seems to be benefiting from multiple crises around the world.

As of June 1, the unemployment rate in the US has dropped to 3.8%—its lowest level in the last 18 years.

According to the April JOLTS report, there were 6.7 million job openings at the end of April compared to 6.6 million in March.

The US bond market was volatile in May. The ten-year yield reached a peak of 3.1% and fell to a low of 2.8% in a span of three weeks.

As per the May ADP employment report, job growth in the professional and business services sector continued to be the key driver for jobs additions.

According to the ADP National Employment Report, the US private sector added 178,000 jobs in May.

The real estate sector (VNQ) has been lagging in performance in 2018. It’s seen a year-to-date loss of 6%.

The US bond market had some relief from its ongoing slide as the Fed’s May meeting minutes were less hawkish than expected.

The most recent FOMC meeting was on May 1–2. At the meeting, the range for the federal funds target rate was left unchanged.

China invests the trade surplus it has with its trading partners in US government securities (GOVT).

The Conference Board uses average weekly unemployment claims as a constituent of its Leading Economic Index (or LEI).

The latest Conference Board LEI reading was released on May 17. The LEI for April came in at 109.4, an increase of 0.4% from the March reading of 109.0.

US ten-year bond market yields have scaled a new seven-year peak at 3.07, their highest level since July 2011.

Goldman Sachs (GS) said that falling unemployment and the rising budget deficit could drive the Fed’s faster interest rate hike process.

The April retail sales report was released on May 15, and the surprise reaction to this report was an increase in bond (BND) yields across the board.

The April retail sales report indicated that the gains were broad-based with nine of the 13 major categories moving higher during the month.

US bond market investors were relieved after the US Bureau of Labor Statistics’ April report, published May 10, indicated a lower-than-expected inflation growth rate.

US indexes (SPY) are reaching highs as investors ignore possible threats of the US pull-out from the Iran nuclear deal and focus on increasing crude prices.

US bond market yields continue to trend higher, but their overall movement last week was limited.

For the week ending May 4, the ten-year (IEF) yield closed at 3% and depreciated by 0.8 basis points. The two-year yield (SHY) closed at 2.50%.

According to the ADP April National Employment Report, US private sector employment added 204,000 jobs in April.

This week is important for the bond markets (BSV). Reports are scheduled for inflation, personal income, and non-farm payrolls.

The Conference Board LEI constructed from the March data signals no immediate risks to the US economy (MDY).

The US bond markets were under pressure as the yield curve continued flattening until Wednesday last week.

No financial indicator is foolproof, and the same can be said about the flattening yield curve in the current economic climate.

Fed member Loretta Mester has sided with Fed Chair Jerome Powell that a flattening yield curve doesn’t signal a weakness.

The spread, or the difference between the ten-year and two-year US Treasury bonds, has fallen below 50 bps for the first time since 2007.

The BLS released the “Job Openings and Labor Turnover Survey” for February on April 13.