Despite the irrational euphoria associated with a stock market which is now at record highs, cash is still making its way over to the perceived safety of bonds-with the 10 year yield now sitting at 2.22
The movement of cash into bonds with a stock market rising on lower volume should be considered as a warning sign that this stock market rally may soon run into trouble. Moreover, even the threat of a Federal Reserve rate hike later this month is not stopping the flow of cash into bonds. Keep in mind that the bond market is about to lose it's largest buyer, The Fed., And you would expect that with The Fed. Stepping out of the way cash would be leaving the bond market, pushing yields higher, not lower.
Another reason why we may be seeing cash continue to move into the perceived safety of bonds, might have to do with crude oil remaining under pressure as well.
The stock market is dependent on the price of the crude oil being high, and I believe this is yet another "tell" that the stock market may soon run into trouble.
The weak Dollar, and the flattening yield curve should also serve as clear signs that the recent stock market euphoria may be on borrowed time.
Gregory Mannarino
