Treasury Yield Declines and Stock Market Highs

Friday's Employment Situation report bodes badly for general economic strength. On April 9^th when the FOMC minutes were released, the Fed made a prescient remark by noting that a 6.5% unemployment rate is an outdated concept for measuring employment. They also said rates won't be increased in the first half of 2015.

Now, Friday's report shows an unemployment rate of 6.3% when consensus estimates expected 6.6%. Initially, this data looks good, save for 806,000 people leaving the labor market. Overall, 92M people are employable, but can't find jobs.

Some data does look good such as Apple's beat on earnings, Facebook and Netflix are similar. Just last month, however, growth stocks sold off significantly. On April 4^th, for example, Facebook fell 4.6% and Netflix fell 4.9% with Nasdaq declining 2.6%.

Other data also looked good in April such as Industrial Production stated on on April 16^th, showing a March increase of .7% when consensus estimates were a rise of .4%. Retail Sales stated in April also exceeded estimates as did Durable Goods Orders and the ISM Manufacturing Index.

Yet, if Friday's Employment Situation report reveals causation, perhaps more than weather explains a Q1 GDP of only .1% growth against an expected growth rate of 1.1%. Pending home sales have been in decline for nine months prior to March. New home sales declined14.5% in March and year over year, decline is 13.3%. Existing home sales are down 7.5% on the year.

Reality for U.S. equities are how they are loitering about their ceiling and trade within a range in terms of S&P 500 and the Dow. Nasdaq simply looks challenged to gain momentum to approach previous highs. Breadth indicators show a rather balanced market, probably revealing ultimate indecision. Therein resides the negative divergence among equities versus treasuries.

Decisive movement can, however, be found in long term treasuries, confirming equities' negative divergence. Where equities hover around highs, treasury yields have been in considerable decline with the 20 year falling 60 basis points since December 31, 2013 and the 30 year 59 basis points. While shorting bonds in 2013 was convention, covering short positions appears to be an inadequate explanation given other dynamics that drive people to safe havens. 

U.S. economic prospects aren't immune from implications arising from Europe, Japan and China. Telling of this proposition is the moderating yield curve with long term treasury yields having been in rather stark decline.