For investors, the current market boils down to a simple question: Who do you trust – stocks or bonds?
U.S. equity ETFs have held up remarkably well considering Treasury yields are hovering near record lows.
In other words, Treasury bonds are loudly signaling investor fears over deflation and the Eurozone debt crisis spiraling out of control. Meanwhile, stock ETFs aren’t mirroring the same level of anxiety.
Both can’t be right.
“If bond yields are overestimating the risk of a breakup of the European Union, then stock prices are likely to jump. Should stock investors be asleep at the wheel, however, they may be dreaming they are approaching a tunnel, rather than a shadow on the wall,” said Sam Stovall, chief equity strategist at S&P Capital IQ.