No Bid For Defensives and What Are The Bond Markets Telling Us? -  Cameron Dawson, CFA, Chief Investment Officer, NewEdge Wealth - video Dailymotion

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00:00 When the market's getting nervous, a lot of times it'll go to the defensive stocks, right? And our

00:05 utilities. I mean, we're showing this chart right here. Doesn't look like investors are taking on

00:14 that defensive stance here. Talk about no bid for the defensives. Yeah. Utilities versus staples is

00:22 such an important intermarket analysis tool for people to use and watch because what it shows you

00:29 is a bid for that duck and cover trade. Utilities outperforming the market have almost always,

00:36 there's been a few exceptions over the last decade or so, have outperformed when people

00:40 are going full risk off. So it's interesting that we've seen this pullback. We've seen 7,

00:45 8% pullback in something like the NASDAQ, but it has not resulted in better performance for

00:51 the utilities. And usually this is better performance by utilities going down less

00:57 than the rest of the market. Sometimes they do go up while the market goes down, but usually it's

01:02 them going down less. So that just shows you that we're not at the point yet of fear and we're not

01:08 at the point yet of growth fears. This is more of a, to bring it back to that earnings and valuation,

01:13 this is more about valuations coming back into normal territory versus earnings getting revised

01:19 lower because utilities are considered to be stable earnings, very predictable earnings stream.

01:24 So I think it's interesting you're not seeing a bid for defensiveness yet. We'll watch it really

01:29 closely. You're back down to, I believe the 2021 lows and relative performance of these utilities

01:38 versus the rest of the market. So you could be kind of like setting the groundwork for maybe a

01:44 bit of a rebound. And I think that that rebound likely would come at a moment where you actually

01:49 see indiscriminate selling. And that's one thing we haven't seen. This correction is just get me

01:55 out. I don't care. And it's not happening yet. We'll see. All right. What's the bond market

02:02 trying to tell us or they don't know what they're talking about. A lot of times, bonds lead the

02:08 market, bonds going lower, looking at an inflation picture. Just talk about what the bond market's

02:14 trying to tell us. Yeah, I think it's it's this brave new world where the bond market is effectively

02:21 giving us this higher for longer message. If we're looking at the two year, the two year moved

02:26 significantly higher yesterday, which was really interesting. But then, of course, we're seeing

02:30 this much higher in 10 year yields, which reflects not only higher inflation expectations, but also

02:38 the higher term premium of this question about do you have continued higher issuance from from

02:45 the Treasury as well as less demand and the probably the demand side of things is the most

02:50 important as well as less demand from foreign buyers as well as the Fed. Right. The Fed is not

02:55 buying treasuries because it's doing QT. It's not doing QE like it was over the last decade or so.

03:02 But we're seeing less demand from possibly from Japanese buyers, which are the second largest

03:08 holders of treasuries because of Japan's tweaking of yield curve control. And look at the GDP number

03:14 that Japan printed overnight at six percent GDP growth. This is more and more making yield curve

03:19 control look like an unsustainable and way too easy of a policy. And if we continue to see weakness

03:26 in the yen and yen possibly breaking through that 150 level, that could force the Japanese central

03:31 bank, the Bank of Japan, to ease that yield curve control even further, tolerate higher yields,

03:37 which on net would reduce the demand for treasuries and could continue to keep that

03:42 upward pressure on long term yields. So there were a lot of bets this year that you'd see

03:47 10 year yields go back to three percent and below because we were going to have a recession and we

03:52 were going to have easier Fed policy. And those bets are it's moving absolutely against them.

04:00 So a lot of calls for people going long duration this year saying, I'll lock it in above four

04:04 percent. We're great to go. And it seems like people are getting caught off sides by that

04:09 because of all these movements in macro.

No Bid For Defensives and What Are The Bond Markets Telling Us? - Cameron Dawson, CFA, Chief Investment Officer, NewEdge Wealth

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