Bonds Performing Their ‘Safe Haven’ Role
By Laif Meidell, CMT, President of American Wealth Management, and Portfolio Manager of the AdvisorShares Meidell Tactical Advantage ETF (NYSE Arca: MATH) and the AdvisorShares Market Adaptive Unconstrained Income ETF (NASDAQ: MAUI)
After the steep sell-off in stocks Wednesday, investors watched with concern as stocks continued to decline for the first 30 minutes of trading Thursday. Fortunately, some oil investors decided prices were low enough to start buying, which halted the decline in stocks, sending prices higher for much of the day as stock investors agreed the recent decline was overdone.
Though stocks gave back a portion of their gains in the last half-hour, the major market averages finished higher, recovering a significant portion of the prior day’s decline. The Standard and Poor’s 500 rose 1.67 percent and the Nasdaq Composite gained 1.97 percent.
The sectors that lead Thursday’s rally tended to be the same ones that have underperformed so far this year, such as energy and biotechnology. The Dow Jones U.S. Energy index advanced 4.40 percent and the Nasdaq Biotechnology index finished higher by 4.03 percent.
Dovish comments from St. Louis Fed President James Bullard spurred the market on as he addressed the recent decline in oil prices, stating, “Inflation expectations are a key factor and if they continue to decline, it would put increasing weight on that.” He went on to say that doubts about inflation expectations “would tend to push off rate increases.”
In light of the recent sharp declines in stocks, this week the bond market is performing its function as a safe haven for investors to wait out the storm. The top-performing bonds this week tend to be of higher quality and longer maturities, led by the Barclays U.S. 20+Treasury Bond index gaining 0.82 percent over the past five trading days, followed by the Barclays U.S. 7-10 Year Treasury Bond index, up 0.57 percent over the same period.