Yes, the Stock and Bond Markets Can Both Be Right

Equities have renewed their rally -- and so have bonds, and that is creating much alarm among some investors. Whereas the former suggests the stage is set for solid growth, the latter and the accompanying narrowing of the yield curve raises red flags about the health of the economy. I am not sure there is much of a puzzle here. This dichotomy is fairly typical of a monetary tightening cycle and can exist for a long time. How long? Until the Federal Reserve finally snuffs out the expansion with excessively tight monetary policy.

Equity markets stumbled after the Fed’s first rate hike in this cycle, but subsequently grew in a remarkably average way: