Risk Off: Stocks and Bonds Trade Down

30 Year US Treasury Futures

30 Year US Treasury Futures

After a week of defying the odds the US Treasury market finally returned to earth today. Prices for benchmark US 10-year debt fell today, breaking 6 straight days of price increases. One would expect a down day in bonds to mean a good day for US stocks, but today everything sold off, the S&P 500 included:

SPY ETF

SPY ETF

The stock market continued a sell-off it began late last Friday. Stocks traced out large trading ranges today as the bulls attempted several rallies, only to be met by increased selling from the bears.

The price of oil stabilized today after further falls over the shortened holiday week. Energy industry stocks have been hurt badly by the fall in oil prices. Falling oil prices normally provide a boost for the world economy, but several things make today’s situation different from the past. For one, the speed of the decline is spooking markets and depressing commodity exporting economies. A gradual fall in energy prices is good for business. A complete collapse in prices can destabilize all markets.

Secondly, the United States has enjoyed benefits of a shale oil boom that goes beyond providing cheap energy bills. The US has become a huge producer of oil again. As the price of oil falls, some domestic projects become uneconomical and there is worry that a sustained fall in prices could affect the nascent US shale industry. Expansion into shale projects has been vigorous; a gold-rush mentality could have left marginal projects at risk from a drop in oil prices.

USO Oil ETF

USO Oil ETF

Categories: Markets

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