US 10-year bonds and US equity are in fully rally mode. They show contradictory expectations for a stalled recovery and future strong growth! How can that be? Because the market is about what participants collectively think – and how markets think has been utterly changed by 12 years of monetary experimentation, repression, and distortion. We’ve got to change the way we think about markets.
Fed Head Jerome Powell set the market wagging y’day, triggering a mini-taper tantrum in bonds and stocks when he revealed no immediate rate hike but the possibility/likelihood of 2 rate rises in 2023. Bonds and Stocks fell. Bonds are unlikely to get much better in coming months – unless we see a market wobble that forces Central Banks to intervene, or something that creates a flash flight to quality. We are now in new market phase – the correlation between bonds and equities is looking vulnerable to a reversal when the free money that’s fed the rally since 2010 dries up! This is getting….. “interesting”.