I was asked the other day where I see markets headed, with a war in Europe and a global oil shock compounding what was already a gnarly tangle of Covid-era supply chain disruptions. The Federal Reserve, after a decade of spiking the monetary punchbowl, is finally beginning to raise rates. As America’s financial bubble hangover begins, this person asked me, where does the smart money go?
Alas, despite the rally last week in the equity markets, we are just still at the beginning of the cyclical downturn in the financial markets. Investors are eager for some sign that we’re turning a corner, such as a pullback in the price of oil, but credit markets continue to swoon. My favorite bellwether, the yield on the average junk bond, closed at 5.94 percent on Friday. At the beginning of 2022, the yield on the average junk bond was 4.35 percent. That’s a difference of 159 basis points, or 37 percent, in fewer than three months.
