What junk bonds say about a recession

  • 8 months ago
Michele Schneider, Chief Strategist, MarketGauge, joined TheStreet to discuss the warning signs of a recession as well as how commodities could be safer plays during times of economic uncertainty.
Transcript
00:00 According to a survey by the National Association of Business Economics, there is basically a coin flip, a 50% chance or so of us hitting a recession in 2024.
00:11 Michelle, I know we were having this conversation a lot this time last year with regards to '23, but how do you think investors should best navigate potential volatility, therefore, in the market?
00:20 Well, gold is certainly one area, and we can see that silver might be a little bit undervalued at this point, too.
00:28 But I think precious metals are really telling you that that could be the safety plays in protection against all types of risk, whether it's geopolitical or monetary or credit risks.
00:41 And the second thing, really, it's an interesting little area that a lot of people don't really follow.
00:47 But I'm very interested in what happens with junk bonds.
00:50 So junk bonds are high yield, high debt bonds that when there's a risk on environment, investors will buy.
00:59 And even though we've seen a big move from the October lows in the junk bonds relative to what, say, what the SPY or the Nasdaq is doing, they're still incredibly low.
01:10 They've really come out of a base, but they haven't fully broken out yet, which tells me that the bond traders are definitely preparing, especially as the long bonds might start to outperform and have been outperforming for a delay in the call for a session from 2023 to 2024.
01:29 So that's kind of I think would be the key is keep your eye on that junk bond situation and the relationship it has to the long bonds.
01:37 As the long bonds have rallied and yields have come off, they haven't really moved very much.
01:42 And that's often a warning not only for some kind of capitulation in the market in terms of a correction, but also the potential of some kind of a recessionary factor.
01:51 Last time we saw junk bonds really in trouble was right before COVID and then during COVID.
01:57 [BLANK_AUDIO]

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