Anyone who thinks the Fed’s policy of taper –reducing its Treasury purchases as the economy improves- steams ahead despite the faltering stock market needs to consider the recent history of that interest rate. Our diagram reveals a sharp reversal –lower yields on the Ten Year Treasury- since the S&P500 peaked earlier this month.
The two lines on today’s figure compare the S&P500 closing prices with the ten day lagged value of the Ten Year Treasury paper. The ‘value’ being the inverse of the daily interest rate of that Treasury debt.
Note how the value changes direction just about where the S&P500 hit its recent top. None of this means that the Fed will allow stock prices to continue their record climb. However, it seems reasonable to assume that Bernanke –nor his new replacement- will let a sharp stock price decline tarnish their image, let alone allow financial markets to nip the economy’s weak recovery at this early stage of the business upswing.
DJIA .70 percent
NASDAQ 1.77 percent
S&P500 1.13 percent
