This charts takes a 25-year look at the Pimco High Yield mutual fund. In 1999 & 2007 the fund was diverging against the S&P 500 and once it broke support the fund and broad markets turned weak together.
At this time PHDAX is now testing 4-year support and it has been diverging against S&P for almost a year!
Below looks at the two most popular junk bond ETF’s against the S&P 500
This chart reflects that JNK & HYG are diverging against the S&P 500 over the past year, by almost 10%! In the past, junk bond divergences sometimes were a caution signal for the future of stock prices. Will it be different this time?
With the S&P nearly flat on the year, one might want to keep a close eye on the junk bond complex to give you and idea of where the S&P 500 could be at year end!
If you would like to stay abreast of the messages from the Junk Bond complex, you might be interested in our Shoe Box/High Yield weekly research report.
Click below for Shoe Box/High Yield report details