Irregular Patterns and Price Action in the Markets

This past week, we have seen a number of markets moving strangely, demonstrating irregular patterns and price action. Stocks have continued to grind higher, notching multiple all-time highs in a weird, slow-motion, gravity-defying climb to ever more rarefied levels. At the same time, bond yields have continued to explode higher, pulling the dollar along for the ride as global investors have happily plowed into the dollar to earn the higher yields offered in dollar securities.

At first glance, these patterns are confusing as the normal correlations between interest rates and equities seem to have broken down.  One could have reasonably expected stocks to fall with interest rates screaming higher, but this has not happened. Why? What is driving this behavior?  Essentially, equity investors have put on their blinders, ignoring a variety of factors that would normally drive their behavior, choosing instead to focus on the stock market with a very selective perspective.  Specifically, they believe the Fed “put” on the stock market is in play, and they are acting accordingly with heavy buying.  They feel confident that the Fed will bail them out with a supportive policy shift every time the stock markets starts to dip.  So far, they are right.