10 charts that show major correction is on the way

August 24, 2015 09:00 AM

There are several concerning signs that should alert traders that the stock market is due for a meaningful correction together with the bond market. Here are 10 illustrated examples for why both stock and bond markets are ready to fall. Several of these were articulated in Modern Trader's August cover story: 10 reasons to sell stocks now


1) Excess Reserve and the TY

Excess reserves are the amount of bank reserves that are kept with the Fed, which pays interest of 0.25%. The Fed uses this reserve to finance at least 50% of its balance sheet. With rising rates, this reserve will decline and the Fed will either have to reduce their overall portfolio through maturity without re-investment or reduce their overall portfolio by selling. Therefore any hike in rate will generally be bad for bond with a flatter curve bias.

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