High Yield funds have been great leading indicators for the equities markets.  On 6/20, I highlighted that several funds were breaking below their 200EMA lines for the first time since 2007. (see post here).  I felt this was important to share with viewers since most of us are well aware what followed the 200EMA breakdowns in 2007!

On a more of a macro point of view I want to share this…. Numerous times over the past 13 years, high yields funds have collectively served as a useful tool for evaluating whether stocks were about to move lower at peaks or head higher at key lows. The accompanying chart overlays several high yield funds compared to the S&P 500 index.

Back in 1998, around the time of the Russian debt crisis, high yields suggested that a frustrating period for stocks was ahead as they started reflecting major weakness. Even though the 500 index headed higher, the high yield funds were creating a series of lower highs, suggesting stock market weakness in the not-too-distant future. 

What followed the 1998 lower highs, high yield message?   Stocks have only struggled on a “Buy, Hold & Hope” basis for the next 10+ years!


As viewers can see, numerous times high yields have sent quality buy or sell signals for equities. Back in 2007, as stocks were making new highs, high yields were creating a series of lower highs, suggesting caution ahead.  On the flip side-High yields put in their lows in 2002 before the 500 did so in 2003 and they did it again in October of 2008, months before the 500 hit a low in 3/09.

Of late high yields have not rallied much since the 500 index hit a low on August 9th. This does not give a clear-cut signal at this time, yet if history is a guide, until they start moving sharply higher, this lack of upside action in the high yields isn’t that great of message for the broad stock market.

Stay tuned and keep a close eye on high yields funds, since they have been a big help in portfolio construction for the past 12 years, and I suspect they will remain a big help in constructing portfolios going forward.

How The Recent Decline In Stocks Looks "Eerily" Like Major Bear Markets Of The Past