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So, about that disconnect between stocks and bonds. We aren’t the only ones who’ve noticed. George Goncalves, who along with his team watches Treasurys like a hawk at Nomura Securities, spotlighted the recent disparity between how investors in the two markets see things. Unsurprisingly, he thinks the bond market is the one that is getting it right:
Nomura analysts write:
Since mid-April there has been a growing divergence between U.S. 10-year Treasury rates and the S&P500 (number 2 in the chart). As seen in the chart, this has happened before with the most recent episode taking place in the weeks leading into the implementation of QE2 in Nov 2010 (number 1 in the chart). In that episode, stocks were proved ‘right’ as yields reversed direction and re-coupled with equity prices. Fast forward to now, the question we keep hearing is – are bonds right or stocks or both? We will explore this relationship further, but at first blush, we think the bond market is the canary in the coalmine this time as we believe the end of QE2 will hurt risk assets (including stocks) more than bonds and the economic recovery is still shaky.
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MarketBeat looks under the hood of Wall Street each day, finding market-moving news, analyzing trends and highlighting noteworthy commentary from the best blogs and research. MarketBeat is updated frequently throughout the day, helping investors stay on top of what's happening in the markets. The Wall Street Journal's Chief Markets Commentator Dave Kansas and MarketBeat lead writer Matt Phillips spearhead the MarketBeat team, with contributions from other Journal reporters and editors. Have a comment? Write to marketbeat@wsj.com or write Dave at dave.kansas@wsj.com or Matt at matt.phillips@wsj.com.
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