TNX 10-Year Treasury Note Yield and SPX Daily Chart Asset Relationship

The Fed and other central bankers have the markets tied in knots with many asset relationships skewed. Typically, lower commodities should be in sync with lower equity markets but the commodities have been weak for months, and Keystone's Rind Index signal has been on a market sell since April, but, the central banker money is stronger than fundamentals and equities print new highs.  The 10-year yield moved in sync with equities for the last few years. A lower yield is a move towards disinflation and deflation and is in concert with equities and commodities selling off. A higher yield is in sync with equities rising. This relationship has changed to yields up and stocks down, or, is wrestling with this change right now, and may revert back.

The higher rates hurt the telecom, real estate, home builders, REIT's and utility sectors so this makes sense that the weakness will create pressure on equities as a whole. The gray boxes above show yield and stocks moving in sync. As yields move higher, stocks move higher, as yields move lower, stocks move lower. Mid-April things change. The circle in April is where yields and stocks diverged, when the Boston Marathon bombing occurred. But, a likely greater effect on markets then was the BOJ increasing their money printing and yen bludgeoning during April which sent the dollar/yen pair higher and U.S. equities higher. The divergence in late April was short-lived since yields then moved higher with stocks again, the gray box, for May. This first week of May turning point was the Fed adding the words 'increase or reduce QE' to their statement. Traders latched on to the 'increase QE talk' and stocks catapult to the May top. Yields print their low at 1.64% and start higher at that time.

At the 5/22/13 top, Bernanke says taper and his hawkish tone causes equities to sell off in force into the June bottom. Note how the yields went straight up from there. This is where the interest-rate sensitive stocks mentioned in the prior paragraph sold off and helped send the broader indexes lower. Since that May top, yields are moving opposite to stocks. The question is will this relationship continue or will yields and stocks revert back to the up yields is up stocks relationship? Note how stocks are at the May highs again but the yields popped from 2.0% then and never looked back, now hanging around at the recent highs at 2.60%-ish. So the bond market has priced in higher yields and likes these current levels. The jury is out as to whether the higher yield lower stocks and lower yield higher stocks relationship continues, or not. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.