This bond market signal indicates the bear market isn't over yet

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The price action of high-yield corporate bonds will signal to investors when the bear market triggered by the coronavirus pandemic is truly at its bottom, according to Longview Economics.

A bear market is a broad decline in a stock market, often defined as a price decline of 20% from a recent high. Sudden, sharp losses in stocks in early-to-mid-March took global stocks into bear market territory as the coronavirus pandemic spread worldwide and oil prices plummeted.

However, Longview economists believe this is too optimistic, in terms of the outlook for both earnings and GDP . They expect the "current pandemic induced supply side shock to evolve into a demand side shock" in a more traditional recession.In a note Monday, Longview argued that high-yield corporate bond spreads have signaled the end of every cyclical bear market since they started being recorded in 1997, often peaking before the equity bear market low.

 

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