10- Year Bond Yield:
* Jan 2, 2014 3.03%
* Jan 29, 2014 2.68%
Bond yields are higher and gold is edging higher as the Fed gives less accommodation, which is something of a head-scratcher. An equity sell-off was expected at some point for a variety of reasons, except for an emerging market currency crisis, which was not expected. The Fed following through on a second adjustment of its quantitative easing program has shaken a few people, but the development wasn't news, nor was it shocking. Coupled with this worrisome crisis that few can get a handle on, and so-so corporate earnings and the Fed moving toward sanity, is all too much for the market to handle.
Still, this is much less about the Fed, and more about seeking shelter from the storm...but the size and duration of this storm is anyone's guess.
So bonds yields aren't exploding higher, and gold isn't crashing through more support points. That's the textbook reaction when the Fed adjusts policy to a less accommodative stance. The stock market will get the press, but it's really in the background to a different kind of emergency that's hard to articulate, or even understand. I've been through this before, and it's still so odd to think that once the Thai baht almost wrecked the world.
So it's all upside down for the moment, and that has the bias squarely to the downside. Yesterday, all three major indices held above key support levels on a closing basis, but it was an ugly ride. This is where investors have to look in the mirror and echo the idea of being investors. Nobody expects the stock market, or all their holdings to go straight up and never pullback or correct, but when the market actually does what markets do on occasion, people become frustrated and people panic.
Orderly pullbacks are healthy for the market and price discovery, and shaking out weaker hands, but corrections are more about emotions, and valuations are flushed with other logical thought. Last year saw a couple of pullbacks (downside moves of less than 10%) with just the faintest whiff of angst, and hardly any panic. That's not the case anymore; although nobody has screamed fire in this theater, the doom-and-gloomers are making the rounds like resurgent zombies.
I don't care about that noise, but I care about people making mistakes that they'll regret in a few months, or even a few years. Face it, equity markets are at or near all-time highs, so what we are seeing isn't March 2009; but when the pullback gains momentum, it's not hard to conjure that wild roller coaster ride.