Market whispers - Bonds will signal if it is safe to buy the dip in stocks

Markets: Beachman's portfolio tactics based on his read of the markets

This year, investors have already experienced too many see-saw highs and lows…and it is just April! It has been one of the most volatile markets in over a hundred years. No wonder…because the US administration is trying to redefine trade relations using rules and protocols from…over a hundred years ago.

We continue to closely follow this market roller coaster. In fact, on the daily, we have been discussing various key signals and price levels in the chat line here. If you have not joined the chat…please check it out. I provide regular market updates and charts, including what is most important to focus on that day and that week. We are always looking for opportunities to buy, trim and even hedge.

Emotions are running high as we try to make sense of what to do with our portfolios. My best friend went to 100% cash on Wed when the SP500 roared back to 5,455. He works long hours and does not have time to actively monitor his portfolio. He prefers to stay out until things settle down. Some readers are 100% long and don’t have cash to buy the dip. Others have been trimming and raising cash. Some even deployed hedges that provide comfort when the market drops.

By now, we fully understand that 2025 is not the year to F.A.F.O.

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Table of contents

• Overall market conditions

• Beachman recommends

• Beachman’s portfolio stance

• Important dates

• Market signals

• Bonds are in charge now

• Bottomline

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Overall market conditions

Trend: Trying to recover.

Risk level: Very high.

Investor sentiment: Extremely fearful.

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Beachman recommends

Each week, I share a recommendation for an app, a book, a website, a podcast, a publication, a movie…anything that I find interesting and useful from an investing and financial management perspective. I don’t get paid to do this. Beachman’s Newsletter has and always will be an ad-free publication. So here goes…

Roy Mattox

In today’s fintwit world, where they seem to always win on every single trade earning the big bucks, Roy provides a fresh, salt-of-the-earth approach to short term trading. He helps you understand when and why it is a good time to put on a trade or exit it using clear, concise explanations and charts. Roy focuses on swing trades and momentum trades. He is not afraid to stay out of the market if he does not see compelling opportunities. He is a voice of reason in these challenging times. Follow him on Twitter.

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Beachman’s portfolio stance

70% long. 19% hedged.

Focused on establishing my hedges.

Trimming and raising cash in line with my 2025 market roadmap.

2 medium term trades in place (See current trades at Beachman’s Salty Trades). Given market conditions, I am surgically buying the dip and selling the rip, while executing short term day trades.

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Important dates

• Apr 18th - Monthly options expiration. About $550B in options delta expiring. 2:1 PUT to CALL ratio.

• May 2nd - Apr jobs report.

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For short term trade ideas, check out Beachman’s Salty Trades.

On the daily, you can find Beachman in four places…

• Beachman’s Substack chat line here

• Beachman’s Substack feed here

• Beachman’s X feed here

• Beachman’s Threads feed here

Please check out the must-reads listed on the About page and the Roadmap page.

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Market signals

The SP500 is trying to heal and recover its previous highs of the year. But it has been 2 steps forward and 1 step back. There continues to be lots of uncertainty to digest along with misplaced hoped that the Q1 earnings reports will give us better news.

The SP500 has found and tested the 4,800 support level. Now the question is how high can it recover, if at all?

The Nasdaq remains more precariously perched in the 450 level with a tougher hill to climb. I constantly remind myself that the tech index contains many more unprofitable and smaller companies with less healthy balance sheets.

Small caps have been an excellent short all this year (unfortunately, I did not get in on this one). However, if markets think that the US Feds will make an interest rate cut in May or June, then small caps could rip higher in the short term.

Bitcoin is going lower in 2025. It is now in a death cross on the chart and stuck below the 200dma. Rug pulls have soured the mood of most crypto tourists, except perhaps the die-hard HODLers. BTC could find downside support in the low $70k region.

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Bonds are in charge now

The biggest elephant in the room is the US bond market. Usually, it stays out of sight just doing its thing in the background. However, today It is driving the direction of the stock market. Here’s why…

The US stock market has always been easily pushed around by news, tweets and rumors. But the bond market is not that easily swayed. Recently though, we have seen some very troubling signs that give us reason to pause.

DXY is a measure of the value of the US$ relative to a basket of six major world currencies including the Euro, the Japanese Yen and the British Pound. DXY has dropped about -9% YTD and is still trending lower.

Usually, when tariffs increase, the US$ currency should go up because those tariffs are paid in US$. But this is not happening. It could mean that there is less trade happening…i.e. less demand for US$ to purchase US assets, goods and services. Recent shipping rates seem to also confirm this.

So now we see that US stocks (assets) are dropping in value AND tariff wars are reducing foreign purchases of US goods and services.

The Fed’s Neel Kaskari noted this week, “Investors around the world have viewed America as the best place to invest, and if that’s true, we will have a trade deficit. So now one of the ways that expresses itself is in lower yields across asset classes in America. If the trade deficit is going to go down, it could be that investors are saying, OK, America no longer is the most attractive place in the world to invest, and then you would expect to see bond yields go up.”

The 10-year LT interest rate has risen about +16% over the past 5 days. This is a massive move in such a short time. In correlation, prices of long-term US bonds are dropping fast.

Bonds 101: Bond issuers pay interest to the bond purchaser in return for the cash from the sale of the bond. So if there are more bonds for sale and less buyers in the market, then bond prices drop to entice buyers to come in. Thus the amount of interest to be paid for those bonds goes up. This leads to a rise in bond interest rates.

Getting back to today’s situation…

This week, there has been more supply than usual of US bonds for sale, including newly issued bonds by the Treasury and from bond holders that are likely selling their existing holdings to raise cash. This is further confirmed by the 20-year bond TLT etf dropping by -8% over this same timeframe.

Rumor on the street is that some of the largest foreign bond holders like Japan and China (via their European-based legal entities) are divesting some of their US bonds. Additionally, a few bond institutional funds faced margin calls and liquidation further adding to the supply of bonds for sale.

Now here is the troubling part in all of this

Stocks are considered risky assets. Bonds are considered safety assets. When stocks go down, investors tend to buy bonds…flocking to safety. But that is not what we are seeing today. The stock market is down, so we know that stocks are being sold. But the bond market is also down along with the value of the US$.

This could be pointing to a growing erosion of confidence in the broader US financial system.

Foreign investors are stepping back from US assets. They are taking their money out of US markets, repatriating it to their home country in the form of different currencies or assets.

The US is at risk of losing its position as a bastion of safety in times of uncertainty….

And lest we forget that the US government has to reissue about $9T of bonds in Q3 2025 to fund the government. If these bonds get a lukewarm buyer audience, rates could step up much higher from current levels. Higher rates mean that businesses cannot borrow easily to grow. It means that retail loans (homes, autos) will be more expensive. It means that jobs will be lost and consumer spending will tank. The recession will be upon us before we know it.

The bond market is about 25% bigger than stock market…a $141T global bond market, of which the US represents about $47T.

In order for the US stock market to heal, the bond market needs to heal first.

It is the captain now…

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What else am I watching?

Recession probabilities have jumped higher with JPM giving it a 60% change and GS at 45%. Economists are predicting job losses of about 2M jobs through the end of the year. With the tariff escalation, for all countries except China, deferred to June, we will have a full quarter of lower trade - imports and likely exports. That could mean that GDP growth for Q2 will be negative, further contributing to the likelihood of a recession. These macro shifts take months to settle in and time to heal. 2025 is likely already shot in the foot.

The tariff war between US and China continues. Each of them have implemented a gazillion % tariff rate on each others exports. After 100%, the actual number does not matter anymore. The US thinks that China needs to sell its manufactured goods to the US consumer. This could be a faulty thesis because China has 1.4B people of which almost 700M are middle class. With the right government incentives, they could cushion any export blow via domestic consumption. China also has the ability to sell their wares to developing nations at a lower price point…because their manufacturing cost structure is very low.

The US needs China to trade and to keep buying US bonds…that is the reality in this stand-off.

And if we have a recessionary slowdown in the US, tax revenues (income for the US government) will decrease putting further pressure on future bond sales.

It all comes back to the bond market, my friend.

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Bottomline

So is it safe to buy the dip?

Yes, it is safer to buy the dip now than it has been over the past 4-5 weeks.

The stock market and several stocks that I monitor have successfully tested deeper levels of support and seem to be staying above them.

The bond market is in turmoil…sure…but these events tend to be resolved swiftly and decisively by central banks and sovereign treasuries. They take extraordinary measures to prevent a deeper catastrophe.

In 2022, the UK bond market experienced significant turmoil during Liz Truss's brief tenure as PM. This was largely triggered by her government's "mini-budget" proposal. The mini-budget announced substantial tax cuts that would be funded through increased government borrowing. The proposal did not undergo an independent analysis from the Office for Budget Responsibility. Investors, both domestic and international, reacted negatively to the proposal, fearing a surge in government debt and inflation. Yields on UK government bonds (gilts), particularly long-dated 30-year gilts, surged dramatically. Bond prices fell and the British Pound plummeted. As gilt prices fell, UK funds were forced to sell gilts to meet margin calls on their bond positions, further driving down prices and creating a "fire sale" dynamic. To stabilize the market and avert a financial crisis, the Bank of England intervened, announcing a temporary gilt purchase program, purchasing long-dated gilts. This intervention helped to calm the market, and yields eventually decreased sharply.

The US Feds and US Treasury will, if needed, take similar emergency measures to address any risk to the US bond market.

Even if the stock market or the bond market drop lower from current levels, we are closer to a short term bottom than ever before.

As per Jurrien Timmer, “Corrections and volatility are the price that investors pay for superior returns, and we have reached that moment again when investors near and far are worrying about losing their gains. Remember, the market has historically gone up 60-70% of the time, which means it has gone against us 30-40% of the time. Maintaining our composure during that 30-40% is what separates the compounders from the whipsawed.”

It might take guts to buy the dip here…when there's blood in the streets. However, we can do it carefully and surgically without getting ahead of our skis.

Cheers.