The change in tone in the equity markets is unmistakable: There is a palpable tension that leads some money managers to shoot first and ask questions later. The net result of that anxiety can be seen in the flood of new money into U.S Treasuries, which ever so briefly drove the yield on the 10 year to less than 2 percent yesterday.
Certainly, fund managers can hide in fixed income, but only for so long.
What caused this shift?
The macro folks call out their favorites: Fed taper! European weakness! Pricey stocks! ISIS! Soft retail sales! Plummeting oil! Slowing China! Even the dreaded Ebola Virus! gets the blame in some quarters.
These are all well-known. There isn’t one single surprise on that list. In fact, many of these macro issues have been on the radar for more than a year. Why now?
The change in tone isn’t the result of any headline or news story. Rather, it more likely reflects the shift in balance between supply and demand for equities. I hope my repeating this doesn’t seem boorish, but what is going on beneath the headlines is far more important than the headlines themselves.
So what is happening beneath the surface?