The Tematica team has been doing a lot of head shaking lately with the markets doing things that either don’t make much fundamental sense or violate well-established correlations. While we all clearly enjoy seeing the markets go up, we prefer to see confirmation that the upward moves are on steady ground. From falling volumes to the rise in both the dollar and oil prices, we are seeing some cracks in the proverbial wall of worry that equities climb and this keeps us in a cautious mood as we get ready for the holidays. In light of the upcoming Black Friday, I also offer a few suggestions at the end for those folks on your gift list that are just impossible.

Earlier this week I was reading The Wall Street Journal and my eyes rested on two articles that really speak to the tone of the markets: “U.S. Stock Indices post Records” sat shoulder-to-shoulder with “Bonds Extend Gains as Investors Rethink Risks.”

I must admit I’m utterly fascinated by the editor’s choice. We can add in the fact that yields on junk bonds in Europe are lower than U.S. Treasury bonds, because hey, Italy is surely a better bet than the U.S., (insert eye roll).

But wait, there’s more. As of Wednesday’s market close the SPDR Bloomberg Barclays High Yield Bond ETF (JNK) had closed down six days in a row, nearing a 7th month low, falling below both its 50-day and 200-day moving averages. (The aforementioned WSJ article was talking about investment grade shares as opposed to high yield which tends to trade more like stocks.) The iShares High Yield Corporate Bond ETF (HYG) also dropped below its 200-day. At the same time, the S&P 500 closed up for five of the past six days, closing at all-time highs. By Thursday’s close, the warnings signs that high-yield had been flashing were heeded with the S&P 500 dropping 0.4%.

You’ve been reading and hearing for months about the striking absence of any volatility this year, as the chart below so clearly illustrates, with a whopping 74% of all trading days in which the VIX closed below 10 occurring in 2017.

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