Although multi-year highs for most of the major stock indexes were
registered last week, longer term, this market appears to be on a
collision course with rising long term interest rates. The yield on the
thirty year Treasury bond recently hit a nine month high. This took
place even though the Federal Reserve is buying $85 billion in
Treasuries and mortgage-backed debt every month. One reason could be due
to the minutes of the most recent Federal Open Market Committee meeting
that showed the Committee was approximately evenly divided between
those that were in favor of ending the third quantitative easing program
in the middle of this year and those that wanted to continue the
program beyond that time, possibly ending it at the end of this year.
Some of these fears were allayed when the FOMC, at the
conclusion of their January 29-30 meeting, provided an as expected to a
slightly more accommodative policy statement. The Fed said they will
continue their current economic stimulus program.
Sentiment Risks
"You
can't get long enough" and "there is no stopping this market now" are
comments that we have recently heard from stock market commentators.
There appears to be a large and growing public participation on the long
side. The public appears to be abandoning the perceived relative
safety of long Treasuries in order to buy the equity markets. In fact,
there are reports that investors poured a record amount of cash into
stock mutual funds and exchange traded funds in January. A recent
Bloomberg poll showed international investors are more bullish on equity
markets now than they have been in approximately three and a half
years, with almost two thirds of them planning to increase their
holdings of equities over the next six months. (more)
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