There is a interesting relationship between the S&P 500 and junk bonds, explains Alessio Rastani, Stock market and Forex Trader at LeadingTrader, as he joined today’s Tip TV Finance Show to speak on the markets.
Selloff in Junk bonds bad for S&P 500
Rastani outlines a chart highlighting the price action in junk bond market and the S&P 500 equity index, explaining that the junk bond market serves as a precursor to the S&P 500.
He highlights how historically whenever the junk bond market has seen a selloff and moved below its 21 DMA, the S&P 500 has turned lower.
Rastani further shows that whenever the high yield spreads are widening, it signals for weakness in the stock market.
While the junk bond scenario bodes bad for the equity market index, Rastani believes that this won’t hurt prospects of a Santa rally, as he expects the index to push higher in the second half of December after seeing weakness in the first half.