By Graham Summers
Stock investing is ultimately based on risk.
The global risk-free rate is the Us 10-Year Treasury. Again, this is the “risk-free” rate for the world. Stocks trade relative to this rate.
The ENTIRE move in the market from the early 2016 lows was predicated on bond yields falling (or bond prices rising). As this occurred, risk became cheaper, forcing stocks higher.
See for yourself. The 10-Year Treasury lead stocks higher throughout 2016.
With that in mind, look at what is happening now. Treasuries are rolling over rapidly and crashing. Stocks have yet to “get it” but they will soon.
When they do, the S&P 500 could literally crash. Yes, I mean crash as in collapse over 100 points in a single day.
And if yields REALLY begin to rise, and the European banking crisis accelerates, we could drop below 1,800 on the S&P 500 in a heartbeat.