For much of the past two months, the equity market has been engaged in a bout of flirtation with what I???ve called the ???reflation trade.???
During reflationary periods, bond yields rise as they reflect investor expectations for future economic growth and inflation.
Also during reflation, we tend to see market sectors linked to economic growth, i.e. banks and financials, industrials, consumer discretionary and small-caps, make a concerted move to the upside.
We saw the beginnings of the reflation trade in September, as 10-year bond yields surged, the U.S. dollar rose against rival foreign currencies and banks, financials and small caps rose.
We know that by looking at two key charts — the CBOE 10-Year US Treasury Yield ($TNX) and the KBW Bank Index ($BKX).