The stock market and the bond market are presently telling us two very different stories. One of them has to be wrong.
Remember the good old days when stocks and bonds used to move inversely with respect to each other? For years, that inverse relationship between stocks and bonds was considered to be almost sacrosanct. That relationship appears to have broken down over the past decade, however.
Anecdotally, it would seem that the stock market now likes bad news; when we have a negative jobs report, the S&P 500 rises because it believes a rate hike will be postponed. Many commentators seem to believe that the present valuation of the stock market is fundamentally justified, because they believe we will have low interest rates forever. If one truly believes this, then maybe the S&P 500 is, indeed, severely undervalued. This dynamic implies that equity markets…
