The Week Ahead On Wall Street

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An honorable member of the Coffee Shop Has Just Posted the Following:

http://www.livetradingnews.com/the-w...m#.U2cDJfmSySo

US Stocks are at record highs, US Treasury bond yields are near multi-month lows, one of these bets is dead wrong.

This equities/bonds disconnect has rarely been seen as far apart. Over the coming months, the US economy is likely to show 1 side has bet wrong.

The S&P 500 stands less than 1% below its all-time high.

This Spring has seen participants willing to bet that economic growth is picking up, as evidenced by stronger spending figures and business demand. That has boosted the cyclical stocks which react to rising demand, energy shares have led the way North.

Bond investors have a very different point of view.

Yields on the 10-yr T-Note hit a 5 month low Friday and the 30-yr T-Note’s yield fell to its lowest since June after the April jobs report, which showed strong growth in NFPs, no growth in earnings and a decline in the US labor force.

The data points to the conclusion that overall economic demand will remain soft, and that inflation will not expand fast, as the US Fed continues to pull back its QE while maintaining Zero+ interest rates.

Bonds are gaining as concern about the Russia-Ukraine turmoil extends the safe-haven appeal of US debt, some corporate pension funds are shifting to bonds as they seek to match their holdings to the liabilities they are looking to see.

The rise in equity markets does not mean that investors are as confident about growth stocks as they were in Y 2013.

The strongest sector in Y 2014 is in the utilities sector, which has gained 14% YTD, and are generally associated with safety and rising interest rates.

Consumer discretionary shares such as Amazon.com (NASDAQ:AMZN) are down 4.2%, the worst-performing sector so far this year.

The data show that the internal rotation in stocks sees the energy sector in the lead, with a 4.2% gainer over the last month.

According to the data, capacity utilization, a measure of how much industrial power is being put to work, rose last month to its highest in nearly 6 yrs and is expected to have ticked higher in the April report, while Fed data showed last week that commercial and industrial loans grew at a steady pace in April.

This makes it entirely possible that the bond market, generally the more conservative of the 2 markets might have it wrong.

Stay tuned…

HeffX-LTN

Paul Ebeling


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