The Dow is higher by 170. Even AAPL is trying to rally here. The engine of the market, oil, is revving higher by 2%, so everything is good.
But if everything is good, why does the ark float?
I’ll try to answer it myself. We’re stuck in a weird world where yields for western economies are plunging, due to central bank over planning, but is also providing succor for equities–who benefit from QE.
Under natural circumstances, stocks go up during periods of economic expansion. When the economy expands, yields rise and bonds decrease in value. During periods of contraction, asset allocators swap out of stocks and into bonds to reduce market exposure, eliminating non systematic risk, or greatly reducing it.
But this shit is bizarre. I’m long TLT, so I don’t mind it going higher. But it was supposed to be a hedge against a bad market, not play along with a good one.
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QE causing more distortion in the bond market than the equity market. This distortion is breaking the normal/classic signal you reference above.
If that’s the case then why does QE cause yields to rise?
Yields rise (bonds fall) approaching FED decisions, but they fall when QE is announced. A 10-yr cahrt will show you that.
Every single announcement of new QE, including the announcement of QE expansions whilst already engaged in QE, has seen a resulting sharp rise in yields.
You should look at the chart you mentioned and reference the dates of QE announcements.
What’s more important, the announcement of QE, or the actual QE? Yields have fallen steadily since the very start of QE, I think thats the trend you should focus on.
Yields are going/staying down because the economy is stalling and world rates are lower than ours. Inflation low, blah blah blah. The only thing that could materially increase yields is more QE. Hopers and Dreamers sell bonds to buy stocks, because that’s what happens.
Stocks are going/staying up because the economy is stalling and rates are low. The idea of a rate hike continues to be laughed at, and the pleasure of laughing causes pajama traders to feel good and buy stocks. Instead of “I am buying because QE” it is “I am buying because rate hike.”
“Volatility Neutral” Funds also contribute to gaps up that don’t seem to be based on any sort of fundamentals.