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Day after day, week after week the Fed is telling folks that they are ready to raise rates. It seemed that investors finally got the memo with an ample increase in rates last week. And this Wednesday investors gave it back.
The 10 year went from 1.87% to 1.82%. The 2 year went from .92% to .87%. And the odds of a June rate hike dropped from 38% to 26%.
Why do investors doubt the Fed?
And why are stocks advancing while rates drop?
The latter question is of interest because, in general, when investors are feeling more optimistic they sell conservative holdings like bonds and move more money to stocks. However, for rates to drop there is an increase in bond demand which says there is an increase in pessimism.
Something doesn't add up!
Either bond investors are right to be worried paving the way for future stock declines, or it is the other way around with stocks leading the way higher. This is an important relationship to stay.
Best,
Steve Reitmeister
Executive Vice President, Zacks Investment Research
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