Financial market overview

Junk Bonds Suggest Stocks May Have Much More Downside

2022.09.29 11:49

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Chris Kimble

When stocks show weakness, we can learn a lot by watching the credit markets. Today, we look at the Junk Bonds ETF, the SPDR Bloomberg High Yield Bond ETF (NYSE:).

Below, we share two charts that help better illustrate what is happening in the broader markets.

The first is the JNK on a weekly timeframe. As you can see, the ETF is nearing its COVID lows and has fallen much lower than its June low. This has formed a bearish divergence with stocks, as several indices have yet to puncture the June low, or, if they did, it was very marginal.

JNK Weekly Chart

JNK Weekly Chart

The second chart looks at $JNK versus the SPDR S&P 500 (NYSE:).

JNK Vs. S&P 500 Weekly

This illustrates just how much further $JNK has fallen compared to stocks.

In summary, stock bulls do not want to play a game of catch-up with junk bonds. 

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