By Ven Ram, Bloomberg Markets Live commentator and reporter
If the infamous tantrum of 2013 was all about the bond markets, this time it may be about stocks. And Monday’s selloff in the S&P 500 and Nasdaq show that traders are getting increasingly nervous about the prospect of the Fed preparing to raise rates, perhaps sooner than earlier thought.
The Nasdaq Composite Index has had an outsized move — a needle that takes it more than 1 standard deviation in either direction based on changes in the past year — on as many as nine occasions in the past month alone. Of course, most of those bigger bands have been shaded in red, perhaps suggesting that traders see the writing on the wall.
Of course, if Treasury yields were to rise, stocks that have run up, up and away may suddenly go from being a helium-filled balloon that defied gravity to a heavy parachute looking for a place to land. Yet not all markers suggest alarm. For instance, the ratio of Nasdaq puts to calls has come well off its recent highs, and while the volatility of vol — a measure of expected swings in volatility gauges — is trending higher, it’s not exploding.
As I have noted before, if stocks are expensive, that’s more a reflection of bonds that are “Hot, don’t touch.” In other words, if bonds are going to cheapen — at least the front end should — then by sheer corollary stocks should feel the heat, if not today, tomorrow, and if not tomorrow, eventually.
Whenever that happens, the Fed may treat it differently than it did in 2013. While a selloff in bonds will make the monetary authority sit up and take notice for fear of forcing a policy error, a stock-market tempest at this stage of the recovery and looked alongside go-go valuations is easy for the central bank to navigate.
