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Monitoring Stock Bond Rotation

Monitoring Stock Bond Rotation

August 16, 2021
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Key Takeaway

The S&P 500 is holding technical support, driven by strong earnings growth and breakouts on the individual stock level. However, the uptrend in equities is narrowing, which could signal a seasonal pullback. We are monitoring overbought signals on the stocks/bond (SPY/TLT) ratio similar to previous episodes of volatility spikes. 

Treasury bonds still offer downside protection, especially as positioning is net-short despite the recent bounce in yields (click here for our outlook on Treasury yields). A break of technical support in the S&P 500 and the SPY/TLT ratio could trigger more defensive positioning in portfolios. For now, volatility is subdued and stocks are in a long-term uptrend relative to bonds, which suggests pullbacks will be limited. 


SPY/TLT Ratio – Monthly Chart