MDM will resume its BUY signal.
Bond and stock prices are shrugging off the bond downgrade as they attempt to push higher. This is in sharp contrast to the last two downgrades where markets immediately fell precipitously in the ensuing days. On a risk basis, the model went to a sell signal just in case, but it appears the dust from any bond downgrade fallout has settled for now. Of course, bonds remain vulnerable due to other factors that we have discussed that have been present for many months thus yields on the long end remain elevated.
“While the Moody’s decision could provide a fresh catalyst for another leg higher in rates as investors have become increasingly nervous about US policy more broadly, we think the bond market has been pricing in the deteriorating fiscal outlook for some time now,” said Raymond James’ chief investment officer Larry Adam. “That is a key reason why longer-maturity yields have been rising despite weakening growth prospects.”
On rates, while Powell maintains his higher for longer view which could spark deeper concern in Trump and Bessent, the Fed has many tools in its toolbox. The Fed is already doing what Trump and Bessent require behind the scenes. The Fed can stop QT on both mortgage-backed securities (MBS) and treasuries. They can restart QE for both MBS and treasuries which will boost housing prices because mortgage rates will fall. They can exempt MBS and treasuries from the supplemental leverage ratio (SLR). At the same time, the Treasury can increase the amount of treasury buybacks each quarter while continuing to issue a large amount of bills (<1yr maturity) over bonds (>10yr maturity).
This all means the QE print machine remains alive and well which tends to push markets higher.
Suggested ETFs (Note: Many members buy the standard ETFs or their preferred ETFs. This list serves as a guide as to which ETFs we think may outperform, but the key point is to be on the right side of the market regardless of which ETF or ETFs one chooses.)
1-times
SPY (S&P 500)
QQQ (NASDAQ-100)
2-times
SSO (S&P 500)
QLD (NASDAQ-100)
3-times
UPRO (S&P 500)
TQQQ (NASDAQ-100)
TECL (Direxion Trust Technology)
NOTE: This is a suggested list. Investors may wish to become acquainted with the full range of available ETFs, and should make an effort to understand how these ETFs are created and what their components are, as well as being aware of the downside risks involved, especially with leveraged ETFs. Certain ETFs may be more appropriate depending on one's risk tolerance levels. Typing in keyword 'ETF' into the FAQ keyword search bar or going here https://www.virtueofselfishinvesting.com/faqs/search?p=1&q=etf and visiting this site https://etfdb.com/ can be instructive.