A handful of market watchers correctly surmised that the pullback in U.S. stocks in early August wouldn’t metastasize into a more painful, enduring selloff. The S&P 500 index
and Nasdaq Composite
finished higher last week, snapping a three-week streak of losses seen earlier in the month. U.S. stocks were trading higher on Wednesday, with the S&P 500 and Nasdaq set to climb for a fourth-straight day.
How did they do it? They simply took their cues from the typically staid market for corporate bonds. Since the beginning of August, analysts including Carson Group’s Ryan Detrick, DataTrek’s Nicholas Colas and Renaissance Macro’s Jeff deGraaf pointed out that despite the drop in stocks, spreads on the lower tier of investment-grade corporate bonds had barely budged. Analysts focused on the spread between the yield on an index of U.S. corporate bonds rated BBB, among the lowest ratings that a company’s debt can have and still be considered investment grade, and U.S. Treasurys. As of this week, the spread between BBBs and Treasurys has remained at just over 1.5 percentage points, little-changed since the start of the month. The analysts interpreted this as a sign that …