This filing analyzes the unusual divergence between a six-year Treasury bear market and a strong stock bull market. It suggests that rising bond yields are currently interpreted by investors as a sign of economic growth rather than a threat, though this dynamic has limits if yields climb too high.
The filing highlights a significant divergence where long-term Treasury bonds (TLT) have been in a bear market for six years, while the stock market (SPY) has experienced one of its strongest bull runs. This unusual situation is attributed to investors interpreting rising bond yields as a sign of economic growth rather than a traditional warning sign. This matters because the historical relationship suggests higher bond yields should pressure stock valuations. While stocks can tolerate higher yields reflecting stronger earnings, there's a limit, particularly if the 10-year Treasury yield surpasses 5%, which could significantly reduce valuation cushions and pose a risk to the ongoing stock rally.