Both markets are responding, each in its own way, to the same accommodative Fed.
together amount to more than a fifth of the S&P 500's value, and make up 40% of the Nasdaq. The Nasdaq 100 has outperformed the industrial sector of the S&P 500 by more than 20 percentage points this year. The median stock in the broad S&P 1500 is still down more than 30% from its high.
And the same deflationary forces and zero interest-rate floor that have the 10-year Treasury stuck below 0.7% also translate into a hefty premium placed on the scarce supply of reliable long-term cash flows represented by big growth companies. Equities tend to attempt to look ahead several months and ride the direction of incremental change in conditions. The bond market, meantime, is only likely to start repricing yields aggressively higher if this incremental improvement is seen making the Fed less accommodative or driving inflation expectations higher.
This abiding defensiveness, even as equities have risen nicely off their lows, is also starkly evident in last week's American Association of Individual Investors sentiment poll, showing bearish respondents exceeding bulls by the largest margin since early 2016. This is quite rare to see after stocks have been rallying for weeks, and serves as a contrarian bullish signal that the public remains skeptical of this market.
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