We track many spreads at Cumberland and circulate a key summary of them every morning. For this public commentary I extracted the ones you see below (the last 7 items are the key ones to examine) because they help tell the story of how the Fed’s activities have decreased risk pricing in the financial markets.
We’ve selected the morning of August 4 (the “Today” column) and three other key dates to demonstrate the time comparison. The December 31 date shows the spreads before all the COVID-19 risk events happened in US markets; March 31 is within days of the extreme. The “Today” and “Last Week” columns demonstrate how these credit spreads are stabilizing at the present levels. Obviously things are much improved from March. Equally obvious is that spreads are much higher (more risk in market prices) than they were pre-COVID. As long as these credit spreads remain stable or keep narrowing, it is likely that other financial metrics will improve and stock prices will maintain their upward trajectory. At Cumberland, our US ETF portfolios are mostly fully invested and have small cash reserves.
Note: If the chart below loses formatting and doesn't render properly on your computer or mobile device, please use this link to see a JPEG version: Credit Spreads Chart August 2020 v1
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David R. Kotok
Chairman of the Board & Chief Investment Officer
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Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.
