Why Bonds Are So Important to Stocks Right Now

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Stocks are currently moving sideways; they’re consolidating almost entirely across the board. But if you’ve been with me for a while, you know I like to think and trade in terms of cycles, and I’m seeing signs that we could be late in the equity market cycle. That’s because we’ve seen recent outperformance in the “inflation trade,” energy, basic materials, and even utilities.

So, I’ve been pretty cautious over the last few weeks, but I’m beginning to be more bullish. The consolidation we’re seeing right now is healthy, and we’ve seen a correction in time, as opposed to price. I think the short-term direction of stock prices is really at the mercy of bonds right now. If they continue to sell off, we’ll see energy and industrials continue to outperform.

But if a new cycle begins, I’d expect tech and classic growth stocks to start to break out in the next few weeks. Let me show you my thinking here…

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