The past few weeks have marked the first time in a long time that we’ve had occasion to consider the proverbial “stock lever” (the phenomenon whereby bond markets strengthen and stocks weaken, or vice versa). The changeover between years is a good time for such discussions as there are always “asset allocation” considerations leading some accounts to put more or less into stocks or bonds.
The end of 2013 was clearly “stock-heavy” and “bond-light,” meaning stocks got all the love and bonds got shafted. The highest stock prices remain on 12/31 at the close of business. But the New Year didn’t bring an instant 180° turn in momentum. Up until last Friday actually, stocks were poised to break recent highs and bonds were having difficulty moving lower in yield.
Friday’s payrolls data changed that for bonds, and brought stocks back from their attempt at the highs. Now today, when SP futures broke just barely below Friday’s lows, a heavy wave of selling followed. There’s no direct 1:1 relationship with stocks and bonds, but that much selling was clearly a net-positive for bond markets that were otherwise coasting sideways heading into the noon hour. As it stands, we picked up another few bps in Treasuries and another 3-5 ticks in MBS Prices.
Retail Sales likely sets the tone for tomorrow.