Facts do not cease to exist because they are ignored.
-- Aldous Huxley
Before theglobe.com IPO, talking trader babies, moral hazards and internet bubbles...before 0% interest rates, option-ARMs, house flipping hair dressers and housing bubbles...before TARPs, 10% unemployment rates, QE 2.0s and commodity bubbles, the United States had a stock market would generally rise and fall with the normal ebbs and flows of the business cycle.
In these days of yore, bond yields directly competed with stock returns for the attention of investor affection. In those days, the bond market was thought to be smarter and more attuned to the business cycle. And since stock prices followed the business cycle, bonds could often fore-tell the future for stocks. Old, grizzled stock pros who had survived the 1970s bear markets, would often look to the bond market for guidance on the future of stock prices.
These veterans knew that falling interest rates were bullish for stocks as they were in 1982, when after several false starts, one of the greatest bull markets in history kicked off.
Souce: Stockcharts.com
Likewise, these veterans understood that rising interest rates would have the opposite affect and generally spell trouble for stocks. For instance, in October of 1993, the veteran stock investors got a well-telegraphed warning when bond yields suddenly began rising as interest rates anticipated a Fed tightening. Stocks continued higher on their merrily way for several months until they snapped to attention and promptly fell four months after bond yields had bottomed.
Source: Stockcharts.com
And again, just a year later, bonds again telegraphed highs and lows in the stock market.
Source: Stockcharts.com
The grizzled veterans also understood what would happen if the stock market ignored the message of the bond market too long. They had gone through the October 1987 crash, when stocks closed their eyes, covered their ears and started yelling LALALALAL!, launching themselves to the sky.
Source: Stockcharts.com
Most of these veterans are long gone now, having been ridden out of town by high flying internet stocks, gravity defying home builders or other phenomenon that they could no longer understand. But just because they aren't around to warn young gun hedge fund managers or high frequency trading computers of the risks of rising interest rates, doesn't mean bonds won't have an affect on stocks.
As the veteran stock traders learned so well in 1987, the stock market can only ignore the bond market so long. And stocks have ignored the bond market for five months now as investors plowed back into the risk trade. But those rising rates will bite at some time. And as the wiley veteran would say, it will probably happen sooner than anyone expects.
Source: Stockcharts.com
The lessons of the bond market have long been lost among the circus of high frequency trading, put-selling hedge funds, activist Fed chairmen and single stock ETFs but they have not been forgotten. The bond market might yet show the stock market a thing or two about forecasting the the future.
But just because they aren't around to warn young gun hedge fund managers or high frequency trading computers of the risks of rising interest rates, doesn't mean bonds won't have an affect on stocks.
Posted by: Men Health | February 10, 2011 at 02:02 PM
We shall defend ourselves to the last breath of man and beast.
Posted by: Coach Bags Clearance | February 25, 2011 at 08:02 PM
I tried it and it works - thanks a million!
Posted by: true religion jeans | March 14, 2011 at 06:22 AM
Thank you for the tutorial! Those are extremely cute!
Posted by: wholesale sunglasses | March 14, 2011 at 08:17 AM
I agree with your point, please share with us more good articles.
Posted by: Nike Free Shoes | June 10, 2011 at 05:05 AM
Sorry,i don't know how to receive my response, why?
http://www.christianlouboutindiscounts.com/
Posted by: Christian Louboutin Outlet | June 22, 2011 at 04:56 AM
I really love to read this post and I am glad to find your distinguished way of writing the post.
Posted by: Nike Air Max | June 23, 2011 at 09:24 PM
This note is all about the role of military advice in the public debate over the Policies.Nice to read these all things.
Posted by: Cheap Bikinis | June 23, 2011 at 09:33 PM
We must accept finite disappointment, but we must never lose infinite hope.
Posted by: Cheap Jordans | June 30, 2011 at 03:19 AM
Such a good writing, or by I saw for the first time. I'm quite happy, you are a good writer
Posted by: Lacoste Trainers | July 12, 2011 at 04:03 AM
This is a great article. I hadn't known any of this stuff baout Phish. You should do this about more artists!
Posted by: christian louboutin sale | July 15, 2011 at 03:16 AM
i come here first time. You can share some of your article, I'm like you write something, really very good! I will continue to focus on
Posted by: Air Force One | July 15, 2011 at 09:30 PM
i agree with your views from here.
Posted by: Cheap Onitsuka Tiger | July 15, 2011 at 09:46 PM
why my comment can't been post
Posted by: puma shoes 2011 | August 01, 2011 at 09:18 PM
I can't believe I've been going for years wtiohut knowing that.
Posted by: Carly | August 03, 2011 at 02:16 PM
Thank your for sharing your wonderful article. I very agree with your views from here
Posted by: Air Max Shoes | August 04, 2011 at 03:08 AM
Looks like they (stocks) finally corrected!
Posted by: Rustin Rodgers | August 08, 2011 at 04:24 PM
Two heads are better than one.
Posted by: Swimwear Bikinis | August 19, 2011 at 05:17 AM
Write a good article really is not easy, it takes a long, long time to write out.
Posted by: ken griffey jr shoes | August 25, 2011 at 11:02 PM
Sorry,i don't know how to receive my response, why?
Christian Louboutin/Shoes/Sale/Cheap/Outlet/UK/Shop/Store/2011/Online/Discount/
http://www.christianlouboutins-cheap.com/
Posted by: Christian Louboutin | September 06, 2011 at 03:06 AM
I really like your site.and really enjoyed this post.Very helpful, great share.Actually, the style of this article I'm like, really pretty good.
Posted by: wholesale clothing | September 06, 2011 at 05:00 AM
I agree with your point, please share with us more good articles
Posted by: Mulberry Alexa Handbags | September 20, 2011 at 05:17 AM
tells the hard-working people in Anhui and hard. "Phase two tire look, unique Jingtingshan", "day break Chujiang door open, clear water flows east far back", "the saying Guilaibukan Mountain, Huangshan Guilaibukan Yue" ...
Posted by: Ken Griffey Jr Shoes | September 26, 2011 at 09:41 PM
Love begins with a smile, grows with a kiss and ends with a tear.
Posted by: leather jackets | September 30, 2011 at 03:06 AM
Good article, Each individual point is sufficient.Appreciate your sharing with us your wisdom.
Posted by: cranberry extract | October 13, 2011 at 09:12 PM