We've speculated as to why this happened, but without fail we always came back to, "Fed manipulation" as the key distorting factor. Is it really that foreign investors needed safe sovereign holdings and continued to by US bonds without regard for yield? Maybe. Was it that Joe 6 Pack was abandoning his fear and rushing headlong into the equity market. Possibly, with a portion of his holdings. Each answer may be correct as the Fed's insatiable desire to buy up mortgages and treasuries has artificially suppressed yields and also forced Grandma and pension managers to elect for riskier assets with "new" money in an attempt to make something. I think this is why our equity leadership has been focused like a laser in dividend paying stocks in defensive sectors. The average investor doesn't trust this rally and hasn't, so as he holds his nose he buys utilities, consumer staples, and healthcare and shuns small caps and technology.
Don't think utilities have been a safe-haven? Check this out. I haven't sold my XLU yet, but is is on the agenda.
As 2013 dawned, we've seen a recoupling of the old relationship in the first few months, and I for one, am very happy. Yet, as happy as I have been, an odd sense of dread kicked in as the relationship over the last few weeks started to break down. Perhaps it was Cyprus, or perhaps the huge rally in the first quarter just needed a breather, but bond yields started floating lower, yet the equity markets just continued to press higher and float out in space to new highs. I 've highlighted the chart of TBF (which is the etf that shorts treasuries which shows the relationships I've been watching). In this chart, TBF should move in lock-step with the equity market (SPX) which is the black line behind the TBF chart.
A month or so ago I put this chart up and called for a change in direction for the stock market, but it didn't come. The weakness in TBF suggests that a healthy correction is in store for stock markets.
Don't get too bearish and over extended here, but certainly the chart suggests a bit lower in equity markets.