tippet,
I think the bonds would have to crack hard before the equities begin to lose strength. Using the December 30 year treasury bond as the basis, the measured move lower would take it to about 123-00. We closed at 127-29, so about another five full basis points at the most, more realistically, another three basis points to 125-00 should slow that decline down somewhat.
But, to answer your question. I suppose that when yields in the long bond exceed the projected earnings of the companies in the SP500 index, then we'll see the equities run into some real trouble for the first time. That's exactly what I saw happen in 1987, but December bonds were then trading at about 68-00, not 127-29. I just don't see that happen again, since the Feds are watching and have pretty much indicated that they won't let that happen.
The bond market appears to have put in a major top on that exhaustive climax of buying when the equities looked like crap. Now that bond buyers want out of the bonds and back into stocks, the short bond trade just seemed too good to pass up.
Believe it or not, the December SP500 futures show a projected measured move back to their old highs at 1200. Heck, if we keep this rally up, we could be there in another couple of days.
GZ |
