30yr Yield and S&P 500

A stroll through time with TYX & SPX.

A great bull market in stocks began in the early 1980s after yields topped out and began to decline from very lofty levels (by today’s standards). That was the fuel, the slack in the rope for future funding that the economy and thus stock market have used to this very day. Even as prices of all kinds have risen systematically, bonds also rose (yields declined systematically) with the bond vigilantes of yore apparently more myth than reality (or extremely selective about what is ‘good’ inflation and what is ‘bad’ inflation).

The long-term correlation in 30yr Treasury yields to the SPX has been negative, obviously.

tyx, spx

From the date of the US presidential election, though the relationship has been volatile the correlation between yields and stocks has been positive. This makes sense because the Trump administration is trying to manipulate the economy with fiscal policy actions while the Fed manipulated the economy with monetary policy action (much of which included outright bond manipulation). Consider the Fed on mop-up detail right now as Trump does his thing.

Finally, you can see that since the most recent ‘inflation trade’ got going in mid-December (gold, commodities and many inflation indicators bounced at that point) stocks also remained firm but then tanked amid growing concerns about long-term interest rates (right on schedule as Amigo #2 it made to destination) and inflation. That was the hype of it. But since late February it has been declining, not rising yields that have been painful to stocks. This is in line with the long-term trend. This morning in pre-market yields are up and stocks are not at all surprisingly up too.

Just another little window into a market that people chasing nominal prices around may find confusing, because in a landscape that has been thoroughly cultivated (no, over farmed) by the Fed the soil is dead and weeds are what grow best. But I digress.

The point being that for over a month now, stocks are back in line with long-term Treasury yields. And that has meaning. People need to really think about the macro and functions and dysfunctions.

Thus ends another post where I don’t talk about stocks or TA or other conventional things and instead probably further confuse some people. I get that. I could sell more newsletters and get more website eyeballs by being linear and easy. But that ain’t what this market is.

Subscribe to NFTRH Premium for an in-depth weekly market report, interim updates and NFTRH+ chart and trade ideas; or the free eLetter for an introduction to our work. You can also keep up to date with plenty of actionable public content at NFTRH.com by using the email form on the right sidebar. Or follow via Twitter @BiiwiiNFTRH, StockTwits or RSS. Also check out the quality market writers at Biiwii.com.