Tightening Credit Spreads Bode Well for Stocks

As pundits and participants alike fret over the short-term prospects of a stock market correction, our HYG (High Yld Bonds) to IEF (Mid Term Treas) price ratio has touched a 28-month chart high and formed a bullish triple top breakout. As a reminder, a bullish price ratio in this case implies that HYG is outperforming IEF as credit spreads tighten. Such action is typically indicative of robust or increasing investor appetite for riskier assets such as stocks. Of course, nothing is certain. But to me, this is a fairly positive short-term signal for US equities in general.