March represented an important low in the major stock market averages, but it also was the occasion for several transitions in intermarket themes. With Fed easing, two-year Treasury yields fell much more rapidly than ten-year yields (top chart), but this changed in March. Now, with traders and investors anticipating Fed tightening due to inflation concerns and the need to support the dollar, two-year yields have been rising more rapidly than ten-year yields.
Concomitantly, we saw a massive rally in gold and a dramatic fall of the dollar going into March (bottom chart), but since then there's been a bounce in the dollar and a retracement in gold. The shift toward firmer yields has modestly supported the dollar, reducing gold's luster as a currency substitute.
March represented the start of a potentially important shift in monetary policy. That promises to continue to impact a number of asset classes, including--as we've seen lately--stocks, which view rising rates with some apprehension, given current economic weakness and continued weakness in the housing market.
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