Will bond market Trump historic stock run up?

Thursday I wrote about how the stock market’s move higher seem out of proportion to where the US and global economies are.

In the first 30 days after the election the S&P 500 is up 5% the best stock index move ever after a presidential election. The Dow Jones index is up 7% over the same time frame.

Well the confirmation to this euphoria in equities is the US Treasury market. The 10-year note yield over the same month after the election has moved from 1.7% to 2.4%.

This is a yuuuge move in a very liquid market. There needs to be tremendous selling in the $15 trillion Treasury market to get this historic move up in yields, which means the price of the bonds has fallen.

While the equity markets generally look out 6 months, the bond market has a longer time horizon given the duration of the notes and the bond traders are seeing a rising inflationary outlook, which could very well be in the cards, given President-elect Donald Trump’s cabinet choices.

Deregulation and tax cuts will spur growth, which means borrowing and perhaps the velocity of cash will increase.

The velocity of cash is what I have been writing about from time to time over the last three years. There was none and it attributed to the economic malaise we were facing.

Lending for personal and business loans were so curtailed — only the people who did not need loans were eligible. It did not make sense, but the regulations put in Dodd-Frank and other policies coming out of the Fed contributed mightily to the constraint of the velocity.

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