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Junk Bonds Suggest Stocks May Have Much More Downside

ByChris Kimble
Published 09/29/2022, 11:19 AM
Updated 07/09/2023, 06:31 AM

When stocks show weakness, we can learn a lot by watching the credit markets. Today, we look at the Junk Bonds ETF, the SPDR Bloomberg High Yield Bond ETF (NYSE:JNK).

Below, we share two charts that help better illustrate what is happening in the broader markets.

The first is the JNK on a weekly timeframe. As you can see, the ETF is nearing its COVID lows and has fallen much lower than its June low. This has formed a bearish divergence with stocks, as several indices have yet to puncture the June low, or, if they did, it was very marginal.JNK Weekly Chart

The second chart looks at $JNK versus the SPDR S&P 500 (NYSE:SPY).

JNK Vs. S&P 500 Weekly

This illustrates just how much further $JNK has fallen compared to stocks.

In summary, stock bulls do not want to play a game of catch-up with junk bonds. 

Latest comments

You don’t need all this to know stocks have more downside. We have only just begun to take the journey down. Any fresh money you put in will let you know. The bull goes up the stairs ( since 2008), bear goes out the window.  The way this ends is when you don’t have more money to put into this anymore
Really a bad comparison to denote that if in tandem we see the Market follow the JNK bonds, as the second chart suggests. Look at the June low and JNK was way way lower to covid lows then as well ? Meaning they are certainly not correlated in ratio at all. Misleading with the red arrow all the way down suggesting stocks are going there  would be a understatement.
Agree, good point. Still a long way to go. Especially with rates still going up and inflation could stick around for a much longer time than so many people are impatiently rushing. Could be many years, history says up to a decade to be back under <2% again.
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