Given the cyclical leadership dynamics since the 8/24 low in stocks, one would have guessed that bonds would have sold off in lockstep with stocks rising. One would have been wrong.

Since 8/24 it’s been energy, tech, materials discretionary and industrial leading the way with health care, telecom and utilities bringing up the rear. That is pretty strong cyclical leadership, as the chart below shows, and the type of sector rotation that would be expected in an environment of rising growth or inflation expectations. As chart two shows, the S&P 500 is up about 5.5% since 8/24. Yet, the US 10-year bond is back trading at exactly the same level as it was when stocks were shunned in late August and “safety” was bid – about 2% (chart 3). Bonds are if anything saying that growth and inflation expectations remain weak.

This tells us something about the rally in stocks and at the very least calls into question the sustainability of the recent rotation to the most cyclical groups.