Primary Dealers’ corporate bond holdings have been in a secular downtrend since 2007, but there have been periods of weak cyclical rebounds. These occurred in early 2009, in the second half of 2010, and lately over the past 2 months, with a false start back in March 2012.
In each of those cases, the recovery began either slightly ahead of or coincident with big cyclical upswings in the stock market. Downturns in this measure have also preceded the last 3 stock market swings to the downside.
Given this pattern, this looks like a bullish intermediate term indication for stocks, at least until the Dealers’ total of corporate bond holdings turns back down.
This is an excerpt from the Wall Street Examiner Professional Edition Fed Report.
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