Reading The Market Signals: Warning Or Opportunity?
| Using Kensho technology, CNBC will surface research and analytic insights designed to create actionable, historical content around market moving events. FALLING RATES: WARNING SIGN OR OPPORTUNITY
Stocks have been under pressure this week as interest rates continued their move lower – the slip concerned investors over the health of the economy - some interpreting the move as a warning sign that a recession could be on the horizon. Bond values and their corresponding rates are inversely related, so as rates go down, the value of the bond rises.
That's what we're seeing in the iShares 20+ Year Treasury Bond ETF, the TLT. The TLT tracks U.S. Treasuries with maturities of 20 years or more – it's gained over 5 percent in the past month. Similar moves have occurred 25 times in the past 5 years, and if history is a guide, stocks could be ready to rebound. A month after a gain of 5 percent or more on the TLT, markets tend to post solid, consistent gains. The Dow and S&P tend to gain around 2 percent each – both trading higher over 70 percent of the time. The Nasdaq leads, trading higher a month later 76 percent of the time, with an average return of 3.6 percent.  REVERSING THE TREND
Investors closed the book on the month of May with all three major indices logging their first down month since December.
The Nasdaq 100, closed out the month down about 8 percent. Since 2010, the Nasdaq 100 has posted a loss of 8 percent or more in a given month on 22 other occasions. Following those drops, the index tends to rebound, up 3.5 percent a month later – a higher trade 82 percent of the time. The top components in that period, Xilinx, Microchip Technology and Analog Devices.  CHIPS, BUY THE DIP? Interesting to note, the top performers in the month following those periods all happen to be Semiconductor names. The Semiconductors as a group have also had a rough month – the Semiconductor ETF, the SMH, has tumbled double digits in the month of May. But history appears to be flashing a strong buy signal – a month after similar drops, the chip names that bounce back the hardest: Xilinx (again), Cree and Cirrus logic – all trading higher 86 percent of the time the following month. 
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