Fed Liftoff Fears

If you were trading bonds in 2013, you know that stocks and bonds were going in the same direction, but usually only in the down direction.  The fear in the bond market was the most I have ever witnessed because of the complacency of the crowd regards to believing QE3 was forever.

Now with a much more calm Treasury market, with much lower yields, you have a mini version of the taper tantrum, this time it is the Fed liftoff tantrum.  It isn't very scary, just because with the ECB promising even more negative rates, and possible QE expansion, the Bund ain't going anywhere.  And Bund yields will not rise until we see much more strength in the Eurostoxx.  Despite a very weak euro,  Eurostoxx is still about 8% below its yearly high, with S&P only about 3% below yearly highs.  

And it is pretty much a given that the Fed is one and done, or two and done (if you see a stock market bubble), and that will not be enough to keep bond yields high.  It looks like we are coming to a great buying opportunity in bonds that will pay off for all of 2016, just like buying bonds at the end of 2013 paid off for all of 2014.

Once this little selloff passes, expect the S&P to get back above 2100.  I am not buying yet, but I see limited downside for S&P given the backdrop.  I would be a very willing buyer at 2040-2050.