Processing the mixed signals from US stocks and bonds

While it may appear as if the US stock and bond markets are sending mixed signals about the health of the economy, it is common for equity prices to remain high while Treasuries rally in anticipation of looser Fed policy. Nonetheless, the stock market’s resilience doesn’t tend to last when the expected reduction in interest rates is vindicated by a slowdown in growth. We expect this typical pattern to be repeated and are sticking to our forecast that the S&P 500 will end this year a lot lower than it is now.