Tuesday, May 28, 2013 - The stock market was up. The Dow gained over 100 points. The S&P 500 gained over 10 points. Yet the 10-year yield was telling another story. Bonds plummeted, which means that interest rates rose. The 10-year yield went up over 6% in one day. The yield is now at about 2.13%.
I think the most interesting thing about the markets was the explanations given by the news media. Whenever there is price movement in the markets, there are usually reasons given for it.
A Yahoo Finance article was titled "Dow ends at record as central banks reassure Wall Street". The articles starts off saying, "Stocks rose on Tuesday, with the Dow closing at yet another record high, in the wake of Wall Street's first three-day losing streak of the year, after central banks reassured investors that they will keep policies designed to foster global growth." In other words, the stock market went up because investors expect more digital money printing in the future.
The article later addresses the rising interest rates. It said, "But even with the reassurance, speculation persisted that a tapering of the Fed's bond-buying plan could be on the horizon, sending U.S. Treasury debt yields to their highest levels in over a year and pulling equities back from their session highs." In other words, the bond market went down because investors expect less digital money printing in the future.
The article is either contradicting itself or is saying that investors are contradicting themselves. I would tend to believe that the article is contradicting itself.
If the author has no idea why the markets are doing what they are doing, then just say so. But I guess they would give the job to someone else then who will make up reasons for why things are happening. Can the guy at least not contradict himself within the same article, only a few paragraphs away?
So which is it? Are investors expecting more "quantitative easing" from the Fed or are they expecting less? If that was the main thing moving markets, then I guess that stock investors and bond investors have completely different thoughts on this.
The markets always come down to buyers and sellers. The market prices will reflect where the parties are meeting. When stock prices go up, it usually means that there are more buyers than sellers, at least in terms of the previous prices. There isn't always an explanation for this. There are billions of people on this planet. There are tens of millions of investors. They act for various reasons.
This article, and others similar to it today, are a good example of why you should take them with a grain of salt. The authors try desperately to provide reasons for market movements, but they really can only guess. In this case, they guess both ways.