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Living in the Post-QE World
Today's chart punctures the popular notion that stocks must fall if bond yields were to rise, post-QE2

By Nico Isaac
Wed, 29 Jun 2011 11:30:00 ET
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The countdown to a post-QE financial world is over in t-minus 10, 9, 8...

June 30 marks the end of the U.S. Federal Reserve's massive "quantitative easing" program. So the question is: Will the end-of-QE days be a world in which only stock-roaches and Twinkies survive?

All jokes aside, many mainstream experts say life after the Fed's historic stimulus campaign will be markedly different for the stock and bond markets. On this, a May 13 Bloomberg piece titled "Investors See Stocks Retreating As Yields Increase" writes:
 
"In a recent poll of 1263 market participants, 54% of respondents say the 10-year Treasury yield will climb while the S&P 500 Index will fall."
 
The problem is, this expectation is seriously flawed. In the August 2010 Elliott Wave Financial Forecast, our analysts put it this way:
 
 
"... the myth [is] still perpetuated by many mainstream market pundits that stock prices do not rally when bond yields rise. Observe that the largest stock market rally on this chart, from October 2002 to October 2007, occurred in conjunction with rapidly rising rates."
 
So, it turns out that stocks can do very well in the face of rising bond yields, thank you very much.
 
As to whether stocks and yields will, in fact, rise in the near future, our Financial Forecast Service offers the latest analysis right now, on multiple time frames.
 

 
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