Bond Market Predicts More Downside For The Dow Jones Industrial Average

From Bill Hall: If you are a regular reader of my Money and Markets columns, you know that I’m a big believer in three things.

One, Occam’s Razor, which is a principle that was introduced to me by the investment great John Bogle. First stated by a 14th century philosopher, the principle says: “The simpler the solution, the more likely it is to be correct.”

Two, the yield on the benchmark 10-year U.S. Treasury is the perfect predictor that will signal the direction of the stock market. It’s really the only indicator that you need to follow to tip you off about whether the market is going up, down or sideways.

That’s because this top-of-the-food-chain interest rate is the key for pricing assets across the board. It sets the prices that investors are willing to pay for everything, ranging from bonds to stocks to commodities to real estate … it will even tell you the direction of the global economy.

I know it’s hard to believe, but it’s really the only number you need to know to protect and grow your portfolio in the current environment.

Three, the yield on the 10-year U.S. Treasury is headed down and consequently stocks in the U.S. are headed down, too. I was spot-on in my March 17, Money and Markets article, when I predicted that intermediate and long-term rates were headed lower, despite the Federal Reserve hiking the discount rate on the short-end of the yield curve.

And right on cue, U.S. stocks began to fall in tandem with interest rates — with the Dow Jones Industrial Average declining from its record level of about 21,100 to its current level of about 20,550. And currently, I’m expecting stocks to decline even further.

Following along with these three key points caused George B. — a regular reader of my articles — to send me the following question. I am publishing it here so that others can benefit from George’s excellent query and my response.

Question: I seem to remember several posts ago you gave some parameters on the 10-year versus the direction of the stock market. As an example, if the 10-year goes below 2.4%, the market is in a downtrend and if it goes above 2.6%, it is in an uptrend. Am I remembering this correctly? And if so, is this still good advice? Thanks, George.

Answer: Great question, George. I currently see 10-year U.S. Treasury rates falling into these three ranges:

  1. More than 2.7%: If the 10-year shoots up above 2.7%, the Trump-reflation trade is on and stocks are headed higher. Much higher!
  1. 2.3% to 2.7%: Should the 10-year stay in this range, stocks will also be range-bound between 19,500 and 21,500 on the Dow. That’s a stock trading range of about plus/minus 10 percent.
  1. Less than 2.3%: If the 10-year falls below 2.3%, it’s “look out below” for stocks worldwide. And we may finally get that long-overdue stock market correction of 20 percent or more that many have been expecting.

There’s a lot of powerful information for your portfolio in this thumbnail summary of interest-rate levels. Keep it handy and use it as your guide when making buy, sell and hold decisions for your nest egg.

As for me — as the editor of Weiss’s flagship publication, the Safe Money Report — I have the hedges on in the Safe Money Portfolio because I expect interest rates to go lower, possibly dramatically lower.


First, we are in a slow-growth world because of a massive global debt overhang. I expect real U.S. GDP growth of about 2 percent for 2017 and 2018 as the global economy continues to battle deflationary pressures. For more on the huge debt dilemma, click here.

Second, there are tons of geopolitical risk currently in the system and with an unconventional president running the show here in the U.S., there’s plenty of opportunity for a potential surprise.

In the financial markets, surprises mean volatility. And currently, the chances for a downside surprise are high as we are operating in a rapidly changing world. For more on the upcoming geopolitical calendar, click here.

Yes, as profit-seeking investors, it’s important to accept the fact that we are operating in a new and unconventional world.

That’s why, next week, I’ll shift my focus from the recent run of macroeconomic commentary and share with you a cutting-edge, functional and proprietary asset-allocation model that I created and that I am using for my ultra-wealthy clients.

The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) closed at $204.37 on Thursday, down $1.30 (-0.63%). Year-to-date, DIA has gained 3.47%, versus a 4.02% rise in the benchmark S&P 500 index during the same period.

DIA currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #5 of 74 ETFs in the Large Cap Value ETFs category.

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