Something good and bad is happening in the financial markets at the same time. Yesterday the US stock market went up again and the iShares Russell 2000 ETF (NYESARCA: IWM) is breaking out. Take a look at the chart.
The Russell 2000 didn’t do as well as the Nasdaq did in August, but is now already on its September high to rally faster than the Nasdaq is now. That bodes well for the stock market in the short-term and suggests that we are indeed going to see the market rally into earnings season this month. As I wrote yesterday, I’m now watching four popular stocks among Robinhood traders now. However, there is something troubling for the long-term happening from an investor stand point and that is the US Treasury bond ETF is fading in a strange way.
The TLT ETF dumped yesterday and broke down. It has gone nowhere all summer since it peaked in April. This ETF historically goes up when the stock market goes down as US Treasury bonds have acted as a safe haven in times of financial volatility and selling in stocks, but when the stock market fell in September this ETF fell too! That is a huge danger sign for long-term investors that diversification now requires doing more than just being invested in bonds as a safe haven, because they are no longer acting as one.
This is the problem with a near zero interest rate policy. Because bonds trades opposite to rates when rates are near zero they no longer have any real upside to them and now they are simply churning. This is why a lot of big money has been going into gold and silver this year and probably why Warren Buffett took a massive position in Barrick Gold this summer. Like everything gold, silver and mining stocks will have its ups and downs on any given day, but what is happening in the bond market creates a bullish trend that is going to be locked in for years.