Beware the Recent Bounce in Bond Funds

If you're a chart junkie like I am, you might've noticed a significant bounce recently... In short, government bonds rallied off their mid-June lows. [Chaikin PowerFeed]( Beware the Recent Bounce in Bond Funds By Karina Kovalcik, senior quantitative analyst, Chaikin Analytics If you're a chart junkie like I am, you might've noticed a significant bounce recently... In short, government bonds rallied off their mid-June lows. The iShares 20+ Year Treasury Bond Fund (TLT) is up roughly 7% from its June 14 low. That's a big move for a long-duration exchange-traded fund ("ETF"). Shorter-duration government-bond ETFs like the iShares 3-7 Year Treasury Bond Fund (IEI) show the same pattern over the past month, too. They all bounced after their June 14 low. Finance nerds might see this recent move higher as a relief... After all, rising bond prices suggest that rapidly soaring rates are cooling off (since they move inversely). Or in simpler terms, it seems the market is getting a break from the Federal Reserve's iron grip. But don't let this signal fool you... It's another bear market trap [like what Chaikin Analytics founder Marc Chaikin discussed last Thursday](. And ultimately, if investors hoping for some relief with government-bond ETFs aren't careful, they could be in for a rude awakening. Here's why... Recommended Links: [TOMORROW: The Most BULLETPROOF Investment on Earth]( Learn how you could compound your wealth by at least 20% per year for decades in a bulletproof investment. Plus, you'll have the chance to see 1,000% upside in EACH of three specific U.S. stocks. Dr. David Eifrig from Stansberry Research says this is the most important message he'll ever deliver. [Get access right here](. ['How I Retired Worry-Free... Earlier Than I EVER Thought Possible.']( For years, this was the kind of retirement I dreamed of... but believed I couldn't achieve. But then I made one, single discovery that changed everything. This approach is safer than stocks... more reliable... and often a lot more lucrative too. [Get the FULL STORY here](. Basically, government-bond ETFs bounced starting in mid-June for two intertwined reasons. This first has to do with the perceived safety of the U.S. dollar. And secondly, higher interest rates mean investors are getting a higher rate of return than they did in the past. Foreign investors like this combination... Rising rates make bonds a better relative investment. That shift attracts more investment, usually from overseas. Think about it... Imagine you're an investor in Europe. If you could get 2% returns from investing in the U.S. or 1% returns from investing in Germany, where would you put your money? You would pick the U.S., of course. However, in order to invest in the U.S., you need to trade in your euros for U.S. dollars. And in turn, that drives demand (and in turn, price) for the U.S. dollar higher. That's exactly what's happening today... The Invesco DB U.S. Dollar Index Bullish Fund (UUP) measures the strength of the U.S. dollar against a basket of six major currencies – the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc. And as you can see in the following chart, based on UUP, the U.S. dollar has been getting stronger and stronger so far this year... But although government-bond ETFs have rallied, we should expect bumpy roads ahead... You see, the most recent inflation data for June hit another four-decade high of 9.1%. That means the Fed needs to continue its fight against inflation. It's essentially committed to raising the benchmark interest rate further in the coming months. Rising rates mean the prices of bonds will fall. And related to that, the value of government-bond ETFs will also fall. It's a war between climbing demand for the U.S. dollar and the fundamental relationship between bond prices and interest rates. I get it. This topic is a little bit in the weeds. But the bottom line is... With more rate hikes ahead, don't rush into buying government-bond ETFs yet. A short-term pullback is likely. And a longer-term pullback wouldn't surprise me, either... If more foreign countries start raising their interest rates, it would ease the narrow spread from U.S. rates. And in turn, that would make U.S. bonds less attractive to those investors. In the end, don't let the recent bounce for government-bond ETFs fool you into thinking prices will keep rising. Expect those gains to reverse – at least over the short term. Good investing, Karina Kovalcik Market View Major Indexes and Notable Sectors # Hld: Bullish Neutral Bearish Dow 30 +2.04% 4 20 6 S&P 500 +1.87% 41 325 133 Nasdaq +1.81% 11 53 35 Small Caps +2.08% 0 0 0 Bonds +0.56% Financial +3.38% 2 46 18 — According to the Chaikin Power Bar, Large Cap stocks are more than Small Cap stocks. Major indexes are mixed. * * * * Top Movers Gainers [rating] C +13.28% [rating] STT +9.74% [rating] NFLX +8.20% [rating] PENN +7.72% [rating] BK +7.34% Losers [rating] CEG -3.90% [rating] STZ -2.56% [rating] KHC -1.94% [rating] NEE -1.77% [rating] DG -1.70% * * * * Earnings Report Reporting Today Rating Before Open After Close SYF IBM, PLD BAC, GS No earnings reporting today. Earnings Surprises [rating] C Citigroup Inc. Q2 $2.30 Beat by $0.64 [rating] PGR The Progressive Corporation Q2 $0.79 Missed by $-0.14 [rating] STT State Street Corporation Q2 $1.94 Beat by $0.20 [rating] PNC The PNC Financial Services Group, Inc. Q2 $3.42 Beat by $0.31 [rating] BLK BlackRock, Inc. Q2 $7.36 Missed by $-0.66 * * * * Sector Tracker Sector movement over the last 5 days Staples +0.05% Utilities -0.09% Information Technology -0.37% Health Care -0.41% Real Estate -0.58% Financial -0.94% Discretionary -1.05% Industrials -1.25% Materials -1.34% Communication -2.29% Energy -2.99% * * * * Industry Focus Aerospace & Defense Services 5 24 3 Over the past 6 months, the Aerospace & Defense subsector (XAR) has outperformed the S&P 500 by +1.84%. Its Power Bar ratio, which measures future potential, is Strong, with more Bullish than Bearish stocks. It is currently ranked #5 of 21 subsectors. Top Stocks [rating] PSN Parsons Corporation [rating] BA The Boeing Company [rating] BWXT BWX Technologies, In * * * * You have received this e-mail as part of your subscription to PowerFeed. If you no longer want to receive e-mails from PowerFeed, [click here](. You’re receiving this e-mail at {EMAIL}. 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