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Beware Bond Rates

Thursday was a typical follow up session to a big rally. Stocks eased into a modest loss. Some profit was taken off recent winners and rotated to new favorites.

Most everything points to a continuation of the bullish trend. However, beyond the obvious economic indicators we also need to be watchful of the movement of the 10 year Treasury.

Why?

The biggest driver of share prices in 2013 was NOT earnings growth. It was that stocks were cheap relative to the artificially low Treasury bond rates (thank you Fed). Right now I think that stocks are still reasonably valued with the 10 year going up to as high as 3.5%. So we are fine now with a close at 2.92% today.

If we start to see a move towards 3.5%, then don't be surprised if stocks stall out or contract even if economic data looks robust. For now keep your bullish bias intact.

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