Will We Get A Santa Rally in 2022?

[eytonxav]

Prices of bonds decline, and likely stock prices too. But the hope is that the higher rates will slow the economy and curb inflation.

Right, what I was alluding to is why buy bonds when the fed continues to raise rates. I am not sure when the fed will stop these rate increases, but just think it makes sense to hold off buying bonds for a while longer.

 

[COcheesehead]

Right, what I was alluding to is why buy bonds when the fed continues to raise rates. I am not sure when the fed will stop these rate increases, but just think it makes sense to hold off buying bonds for a while longer.

Yields on intermediate and long term bonds are already dropping. So rising Fed rates brings greater risk of recession which fuels more bond purchases, which drops yields. So sitting back and waiting for the Fed to stop is sort of like the game of musical chairs. You may not have a seat at the end.

Also in regard to bond prices. If you hold to maturity, which I mostly do, the mark to market price is meaningless.

Retirees longed for better fixed income yields and now they are here. Just don’t buy bond funds.

 

[milford]

Yields on intermediate and long term bonds are already dropping. So rising Fed rates brings greater risk of recession which fuels more bond purchases, which drops yields. So sitting back and waiting for the Fed to stop is sort of like the game of musical chairs. You may not have a seat at the end.

Also in regard to bond prices. If you hold to maturity, which I mostly do, the mark to market price is meaningless.

Retirees longed for better fixed income yields and now they are here. Just don’t buy bond funds.

Why not get the best of both worlds where you can collect a small yield while also having the possibility of some appreciation of the bond fund once interest rates reverses (albiet its a bit riskier)?

 

[COcheesehead]

Why not get the best of both worlds where you can collect a small yield while also having the possibility of some appreciation of the bond fund once interest rates reverses (albiet its a bit riskier)?

Major thread drift. Read the golden period thread regarding bond funds. I think that will answer your question.

 

[Graybeard]

Ok. I accept that, but we will see what happens this year. My gut feeling says we are still in a bear market. Does being in a bear market determine whether a Sant Claus rally will happen? I have no idea.

It can. In bear markets, the rallies are often short but the gains are substantial and then it is all given back as the bear resumes.

 

[MarieIG]

Peering into my crystal ball, I made out Jerome Powell's face, his lips moving, and a lot of volatility in the markets.

Oh, and Jerome may be getting a lump of coal in his stocking . . .

 

[Montecfo]

I am not a bond expert, but what happens to the price of those bonds when the fed continues raise rates?

It is a bit of a mixed bag at this point. Recently short rates have risen in response to Fed rate hikes but longer term yields have declined.

The market appears to be discounting a recession, much lower inflation, or both.

And this is why the answer is a bit complicated. Long rates peaked about six weeks ago. So that would have been the time to extend maturities, or so it seems to this point.

But your intuition that higher interest rates cause bond values to decline is correct, by definition. But Fed funds rate hikes only reliably raise short term rates.

 

[COcheesehead]

It is a bit of a mixed bag at this point. Recently short rates have risen in response to Fed rate hikes but longer term yields have declined.

The market appears to be discounting a recession, much lower inflation, or both.

And this is why the answer is a bit complicated. Long rates peaked about six weeks ago. So that would have been the time to extend maturities, or so it seems to this point. The inversion is super steep. For rates to normalize short comes down or long goes up.

But your intuition that higher interest rates cause bond values to decline is correct, by definition. But Fed funds rate hikes only reliably raise short term rates.

Yes, the Fed moves the short end. The market predominantly moves every other point. Right now the market is pushing almost anything over 2 years lower in yield - meaning it’s being bought.

 

[NW-Bound]

Oh, and Jerome may be getting a lump of coal in his stocking . . .

I am afraid we are all getting lumps of coal this year.

Burn it for heat. Make the best of it.

Maybe coal for next year too?

 

[freedom2022]

coal?

Could anybody explain about coal?
Black, so the stock ticks higher?

 

[audreyh1]

Could anybody explain about coal?
Black, so the stock ticks higher?

If you’ve been naughty, not nice, you get coal in your stocking for Christmas.

 

[NW-Bound]

 

[eytonxav]

Yields on intermediate and long term bonds are already dropping. So rising Fed rates brings greater risk of recession which fuels more bond purchases, which drops yields. So sitting back and waiting for the Fed to stop is sort of like the game of musical chairs. You may not have a seat at the end.

Also in regard to bond prices. If you hold to maturity, which I mostly do, the mark to market price is meaningless.

Retirees longed for better fixed income yields and now they are here. Just don’t buy bond funds.

Thanks, that helps me. I have mostly been a bond fund holder, until I bailed earlier this year. Looks like the buying window for individual bonds may have passed or will soon. Do you have any specific recommendations for a intermediate/longer term bond right now?

 

[JohnRM]

Keep on keepin' on

Any time our investments go up is welcome. We are up for October, November, and this month so far. I am more interested in staying relatively healthy. Hopefully 2023 will be a better year all around.

 

[COcheesehead]

Thanks, that helps me. I have mostly been a bond fund holder, until I bailed earlier this year. Looks like the buying window for individual bonds may have passed or will soon. Do you have any specific recommendations for a intermediate/longer term bond right now?

Nope. Bonds aren’t like stocks. They trade thinly so I could recommend something, but you likely can’t buy it. Watch the new issue page at your brokerage. Buy quality, ladder them, don’t wait for the “best” yield you can buy, but what gives you the cashflow you need/want. Buy non callable at a high yield. Today was an example of what is only going to happen more in the future. Yields on anything over a year or two will drop.

 

[maestro]

Prices of bonds decline, and likely stock prices too. But the hope is that the higher rates will slow the economy and curb inflation.

+1
The 'Santa Claus Rally' showed its colors today. Up big, only to fizzle in 5 hours, as we know what's coming. Peace and Merry Christmas to all.

 

[NW-Bound]

+1
The 'Santa Claus Rally' showed its colors today...

It's black?

 

[38Chevy454]

Well, given the big drop in the markets today (Dow -2.25%, S&P -2.49%, NASDAQ -3.23%) it is a deeper hole to climb out, for any rally start from. I'm becoming more pessimistic about a nice year end increase in the markets. Might still have a short rally by end of the month, but this year in total has been kind of rough.

 

[audreyh1]

Not looking so promising now, eh?

 

[mcbraemer]

Thanks, that helps me. I have mostly been a bond fund holder, until I bailed earlier this year. Looks like the buying window for individual bonds may have passed or will soon. Do you have any specific recommendations for a intermediate/longer term bond right now?

Buy individual bonds, of non-junk variety, with an acceptable effective rate of return,. Plan on holding until maturity. Unless they default (rare), you will enjoy the monthly, quarterly or whatever cash flow into your account. You may decide to sell some or all at a profit, should the Fed rate fall below the rate on your date of bond purchase The more it falls the higher the bond value at sale. Or simply hold them to maturity at which time standard issue bonds will return face value. There are other types, so do your education homework before taking the plunge.

 

[NW-Bound]

Considering the S&P was down -25% YTD in early Oct and only -18% YTD today, we should consider that the early gift from Santa.

Still, if Santa gives me a few % before the year end, I will be grateful.

 

[audreyh1]

Considering the S&P was down -25% YTD in early Oct and only -18% YTD today, we should consider that the early gift from Santa.

Still, if Santa gives me a few % before the year end, I will be grateful.

I definitely do! Especially as the bond market has rallied as well!

It was like a Thanksgiving rally.

 

[MarieIG]

I am afraid we are all getting lumps of coal this year.

Burn it for heat. Make the best of it.

Maybe coal for next year too?

I would not be surprised . . .

 

[NW-Bound]

I always prepare myself for the worst, but expect that next year will be flat.

There may be a dip in the middle of 2023 plus a lot of ups and downs. But if inflation is abated, and it looks like the Fed may ease off, the market will rally before the interest rate gets trimmed. We will not know until we get there.

 

[audreyh1]

Honestly, I wouldn’t be surprised if the market recovers somewhat during 2023, even having a positive year. But it’s hard to imagine recovering to Jan 3 2022 levels and higher with a 5% Fed rate headwind.