It appears that we have now entered a major crossroad with regard to the price action in the stock market, and the recent rally in the debt market.
Understand, The conflict between a rally in the stock market while at the same time having a rally in the bond market must resolve. The conflict between both the stock market and the bond market is made worse by the fact that we are seeing a rally in the bond market at the same time that the largest buyer of debt, the Federal Reserve, is removing itself from the purchases of bonds.
The rally in the bond market must be being fueled by institutional investors, who are also at the same time riding the upward momentum of the stock market. What this tells me is the stock market rally may soon run into a brick wall-and many investors will be caught on the wrong side of the trade.
The recent rally in the stock market seems to be being fueled by just a few companies on low-volume, and this should be a big tell that the stock market rally could possibly turn into a selloff on a dime.
The bigger take away here is the stock market rally will react to what the bond market is doing at one point. Moreover, if the rally in the bond market reverses, yields will rise and this could also put pressure on the stock market. Keep in mind that this does not have to happen tomorrow, next week, or even next month, but the fact remains that either the stock market or the bond market will react to what the other is doing at one point, they cannot both remain in sustained rallies at the same time.
Gregory Mannarino