The stock market is on a tremendous, multiyear bull market, though of course there have been a lot of dips along the way.
But something seems to be different about the recent sell-off in stocks (which is continuing Monday).
Dan Greenhaus of BTIG writes:
What we find most interesting about the five session, 2.3% drop in equity prices, is not the shallowness of the decline, nor its length (or lack thereof). It was the speed at which sentiment shifted from bullishness to bearishness. Newspaper articles, television commentary and client interactions all appeared to shift on a dime, suggesting that perhaps, just maybe, people aren’t as comfortable in their bullishness as some may assert. We find this interesting given the table below which details exactly how positive the fourth quarter tends to be.
Why is this selloff causing such alarm?
It might be because of this chart (and other similar ones), which shows the interest rate on two-year US bonds.
Two-year bonds have been in a very long downtrend, reflecting the fact that the market was not anticipating Fed rate hikes for a very long time to come.
But as you can see from the chart now, yields on the two-year are at multiyear highs and appear to be in the type of sustained uptrend we just haven't seen since the financial crisis. This is a reflection that the market is seeing the first Fed rate hike sooner rather than later. And in a sense, the rise in short-term rates means the Fed has already begun tightening rates.
In the past, markets could be soothed by the belief that any Fed tightening cycle was a long way out. Not anymore.
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