When a major benchmark in the market falls to near-historic lows, you had better pay attention. That’s certainly what’s happened with long-term interest rates, i.e. the yield on the benchmark 10-year Treasury Note.
The chart below of $TNX shows the rapid decline in bond yields since July, a decline that continues today.
Now, there are many reasons for the decline in bond yields and the subsequent rise in bond prices (remember that bond yields move the inverse of bond prices), and this situation tells us a lot about what’s happening in the world right now.
There’s a lot of geopolitical uncertainty around the globe. Violence in Gaza, Ukraine and Iraq are the three serious hot spots right now, and that’s got traders more than just a little nervous. Perhaps more importantly, we have the rocky European economy, which has slowed down quite a bit of late. If Europe’s economy starts to get significantly weaker, it could mean an even bigger flight to quality in long-term bonds and an ever further decline in bond yields.
During periods of rising bond yields and faltering U.S. equity prices such as we’ve seen since late July, it behooves us to look into what are called “non-correlated” asset classes. These are asset classes that tend not to move along with the wider U.S. stock market.
Assets such as gold and silver are considered traditional non-correlated investments, but the other non-correlated asset class I like is China. Stocks that trade on the Chinese stock market as “A-shares” generally do not track the movement of U.S. equities. During periods like we’ve seen in the past several weeks, and also throughout July, Chinese stocks handily outperformed the U.S. stock market.
In the next two sections of today’s Weekly ETF Report, I’ve expounded more on some other non-correlated markets, as well as ways to play the non-correlated China market. Let’s take a look at those now.