Here’s a chart for investors to chew over. Gina Martin Adams, senior analyst at Wells Fargo Securities LLC, summed it all up best on Bloomberg radio this morning by saying the only two things we care about are the Fed and stocks. Specifically, we’re bothered about the Fed’s timing of changes in monetary policy.
It shows the S&P 500 index overlaid against the net long or short position in the Eurodollar interest rate futures contract. Perhaps one takeaway from this picture is that some investors are positioned for the most anticipated monetary tightening there never was.
Chart – Fed funds, speculators net Eurodollar position and the S&P 500 index
Fixed income investors appear to have been too concerned that yields are destined to snap-back as soon as there is a sign on the horizon that the post-QE Fed is ready to start the process of lifting the fed funds rate. Part of the same process has been that stocks have room to rally precisely because the central bank is channeling liquidity there because they are depressing longer-term yields.