Junk Bonds Vs. Stock Market

There is a correlation between junk bonds and the stock market. The junk bond market is a leading indicator for the stock market. Whenever junk bonds decline in value (yields go up), stocks will follow the decline. In 2007, junk bonds started their collapse, one year later in 2008, the stock market crashed.

This is why we need to keep an eye on high yield debt (blue chart). Since the second half of 2014, this high yield debt has collapsed. Soon, the stock market (red chart) will follow.