Major Bond Funds Break Down to Multi-Year Lows

Treasury and investment-grade bond funds have broken down to multi-year lows following the Federal Reserve's eighth rate hike since December 2015, dropping them into long-term bear markets. Rising yields will now compete with equities and other asset classes for investor capital, waving red flags for the stock market's multi-year uptrend. Rates may continue to rise into the new decade, making bonds even more attractive to the market's biggest players. Legendary technical analyst Edson Gould summed up a classic rule describing the long-term relationship between stocks and bonds, commonly referred to as "three steps and a stumble," noting, "whenever the Federal Reserve raises either the federal funds target rate, margin requirements, or reserve requirements three consecutive times without a decline, the stock market is likely to suffer a substantial, perhaps serious, setback. “The Fed has already exceeded Gould's requirement by five hikes, but this economic cycle started from the deepest recession since the 1929 crash, giving central banks plenty of wiggle room before the stock-bond equation shifted away from equities.