“Rest in Peace,” Bull Market

“Rest in Peace,” Bull Market

Investors can’t take their eyes off the Dow.

The Dow Jones Industrial Average has jumped more than 7% since Election Day. Last month, it set a new all-time high.

But that hasn’t been enough for many folks. They’re waiting for the Dow to top 20,000.

From a technical perspective, “Dow 20,000” wouldn’t mean much. Right now, it sits at 19,876—within 1% of the mark.

Still, Dow 20,000 could have a huge psychological impact. After all, it’s a big, round number. Most people would be excited to see the Dow reach this milestone. If it does happen, many investors who are sitting on the sidelines could jump back into stocks.

But that doesn’t mean you should obsess over Dow 20,000.

• Bill Gross says there’s a much more important number you should be watching…

Gross is one of the world’s most respected investors. He founded PIMCO, one of the world’s biggest money managers. Today, he manages a giant bond fund at Janus Capital Group.

According to Gross, investors should be watching the bond market, not the Dow. He wrote in his monthly investing letter earlier this week:

[T]his is my only forecast for the 10-year in 2017. If 2.60% is broken on the upside—if yields move higher than 2.60%—a secular bear bond market has begun. Watch the 2.6% level. Much more important than Dow 20,000. Much more important than $60-a-barrel oil. Much more important that the Dollar/Euro parity at 1.00. It is the key to interest rate levels and perhaps stock price levels in 2017.

Notice Gross said “secular” bear market. That means he thinks bond prices could fall for years, possibly decades.

• Right now, the U.S. 10-year Treasury yields 2.4%…

That’s only 20 basis points (0.2%) below 2.6%.

In other words, Gross thinks the bull market in bonds could end any day now. Most investors aren’t ready for this.

You see, bonds have been in an uptrend since the 1980s. This historic bull market has survived three recessions, the dot-com crash, and the 2008–2009 financial crisis.

Many investors have only seen bond prices go up…that is, until recently.

• The bond market started unraveling last summer…

You can see in the chart below that the yield on U.S. 10-years is now almost twice as high as it was last July. (A bond’s yield rises when its price falls.)

Corporate and municipal bond yields have also skyrocketed over the last few months.

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