US Treasuries & equities: squaring the circle

For much of the past year, loose monetary policy has been the fuel that has kept the US stock market’s fire burning bright. It might seem odd then that the S&P 500 fell yesterday by the most in a day since late October, even as Treasuries took heart from Chair Powell dovish comments (see here). The fall in the stock market can probably be at least partly explained by some ongoing fizzling out of the “reflation” trade (even if some of it reflected selling by investors on the wrong side of reported “short squeezes”). We don’t expect that to last though. Indeed, the reflation trade appears to be back in fashion today.