While the S&P 500 and Nasdaq were both notoriously weak yesterday given the usual positive bias during the Christmas week, not everything was down. In the credit markets, corporate bonds had a strong day, and if these trends continue, it will bode well for stocks. As shown below, using the iBoxx ETFs as a proxy, both investment grade (LQD) and high yield (HYG) corporate bonds had decent gains yesterday after rallying nicely over the past week as well. The stock market has really played second fiddle to the credit markets during this downturn. Many investors have been waiting for the corporate bond market to show signs of life before getting back into more risky assets. From the looks of these two ETFs, the credit markets are finally gaining some positive traction.
One market indicator that did decline yesterday was the VIX. It is now down five days in a row and closed below 45 for the second straight day. If this volatility indicator can manage to work its way down into the 30s (and ultimately the 20s), we should see higher stock prices.
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