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Wed, September 30 at 4:00PM ET

Trade of the Day: Cars.com Inc (CARS)

Don't be fooled by the drop in bond yields

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My indicators are giving neutral-to-bearish readings this week, a mild downgrade from neutral-to-bullish readings last week, and the market has continued its choppy action thanks in part to the situation in Italy. The political turmoil there also caused interest rates to drop significantly, as money from overseas started to pour into U.S. Treasury notes as investors searched for a safe-haven for their capital.

Now, ultimately, I strongly believe that interest rates are going to rise. In fact, Jeremy Siegel, a finance professor at Wharton who has been very bullish on the market for a long time, went on CNBC this week to say that the biggest threat to stocks is still higher interest rates. He also expects the Federal Reserve to raise the federal funds rate three more times this year, and therefore suggests that remaining cautious is key at this point.

As for inflation, I’m not too worried about that being the factor that leads to higher interest rates. Rather, the record levels of consumer, government and corporate debt — what I call the “debt bomb” — are unsustainable, and one day this is going to cause a big problem because you can’t just keep throwing more debt after more debt. When the debt bomb explodes, investors are going to demand much higher yields to hold Treasurys, and that’s going to weigh on the market heavily.

And with my market indicators turning south, today I am recommending a bearish trade on Cars.com Inc (NYSE:CARS):

Buy to open the CARS Sep 22.50 Puts (CARS180921P00022500) at $0.90 or lower.

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Article printed from InvestorPlace Media, https://investorplace.com/2018/06/trade-of-the-day-cars-com-inc-cars/.

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