Houghton and Atkeson

Credit Markets Point to Upturn

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Editor's Note: While Sam Collins is on vacation, we've asked Nick Atkeson and Andrew Houghton, editors of Big Money Options, to provide you with a comprehensive market outlook and a trade of interest until Sam returns June 1.

On Friday, the markets may have been anticipating a possible General Motors (GM) bankruptcy, which is likely to have a damaging effect to employment in the near-term. Although a GM bankruptcy may end up being a very positive long-term event, it carries substantial uncertainties in the near-term, which the market reflected.

The S&P 500 (SPX) closed the week at 89.02, or down 0.21%. The Dow (DJI) was down 14.81 points, or 0.18%. The Nasdaq (NASD) closed down 0.33%.

The CBOE Volatility Index (VIX) closed at 32.69. This measure of volatility continues to climb off its Thursday intra-day low of 26.57 and closed the week at 31.35, an 18% increase.

The credit markets continue to decouple from the equity market. Investors are selling Treasuries to buy corporate debt. On the surface, equity investors get nervous when interest rates on Treasuries are rising. In this case, they should consider that, while Treasuries rates are rising (bonds falling), corporate debt rates are falling, which is allowing companies access to a free-flowing corporate debt market.

Credit investors are moving out of safe investment areas and re-risking their portfolios. This bodes very well for future corporate profits and equity prices.