Market Notebook

Downward pressure on global equities and bonds continued for most of the last week into the quarter-end. 

US equities staged a nice rally on October 1st, painting a bullish reversal candle on the SPY chart. It seems likely that rebalancing flows into the end of the quarter contributed to the pullback in equities. Once rebalancing flows had abated, the scene was set for a rally. Next week will be particularly telling should the SPY be able to remain above the low set on October 1st.

Inflationary concerns and Fed tapering appear to be behind the pullback in bonds. Bonds generally remained within and near the bottom of a wide consolidation range established in late June. The financial media would have one believe that there was a bloodbath in bonds, when in fact, bonds were, as some would say, inevitably adjusting back to the more reasonable levels of a few months ago. At current prices, as measured by BND, bonds are sitting right at critical technical support. A further breakdown in prices and increase in yields could cause a reactionary pullback that would have more to do with fear than with Fed tapering. If a portfolio requires the purchase of bonds, this is not the worst spot to pick some up. If, however, a portfolio does not require the immediate purchase of bonds, it may be advantageous to wait to see if a fear-based pullback occurs, thus presenting an opportunity.

Looking forward, the recent pullback in equities could present a number of buy signals on a technical basis if the market does well next week. Be advised that few equities are currently a buy from a valuation standpoint. There are, however, a few interesting candidates within the Value Factor Candidate list in the notebook. Just remember, even Value Factor Candidate equities reference “value” compared to other equities and not absolute value.

All the best in the week ahead.