Something strange is going on in the financial markets. With strength in commodity and industrial stocks and weakness in utility and consumer staple stocks, the stock market is acting like a sustained burst in inflation is upon us. However, the bond market remains calm with the 10-year U.S. Treasury yields being well-behaved at around 1.6% and with the 10-year break even at modestly above 2% suggesting lower out year inflation than the 5-year break even.
What gives? My answer is simple. The bond market is listening to economists while the stock market is listening to a parade of companies reporting higher prices. To sure some this maybe due to temporary bottle-necks, but the breadth of companies reporting rising prices indicates to me that an inflationary process is well underway. After four months of sequentially 3%+ inflation the bond market and what I would characterize as the "Fed-shilling" economists will come around.
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