The divergence in equity and credit markets

This chart speaks volumes about the Trump rally. 

Up until February, the Russell 2000 and the 10-year Treasury yield were moving up in lock step. That’s a sign that markets expected an economic rebound which would eventually drive up the Fed Funds rate, but that the growth would enhance profits even so. Now, however, equities and bonds are diverging, with bond yields falling back down even as equities continue to rise. Bonds are no longer sending the message of unalloyed economic optimism that will induce rate hikes.

In the wake of 12 consecutive highs on the Dow Jones Industrial Average, that message is worth considering.