One
of the themes for this year so far has been the so-called “Great Rotation” out
of bonds and into stocks. While this has
been true for the most part, there are signs that investors haven’t completely
lost their skittishness and haven’t yet fully embraced the bull market. This can be seen in the recent performance of
the Treasury Bond ETF (TLT).
Note
the conspicuous spike in the TLT price line from last week. This is indicative of the rush into
Treasuries that occurred with North Korea’s threatened nuclear strike. Gold also experienced a rally last week
during the tension. What this tells us
is that investors are still quick to run to the safe havens over the slightest
provocation – however distant the threat may be. But it’s equally telling that while investors
may have temporarily panicked into Treasuries, they didn’t completely run away
from stocks.
Now
that the threat of a military episode involving North Korea is perceived as unlikely,
investors were just as quick to rush headlong into equities, sending the major
indices to new highs. This volatile
behavior is reflective of the latest AAII investor sentiment poll which showed a
huge spike in the number of bears and a substantial drop in the bulls.
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