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The Rotation Coming By Charles Payne

I think the Fed Rally began yesterday!

Yes, there is no doubt that actions by the Federal Reserve have had a positive impact on the stock market, but nowhere near the degree that the Doom and Gloom crowd says it has. The volumes aren't there because according to one report, equities are at the lowest portion of investments compared to any other time in history (or just since 1959), and the Great Bond Rotation never occurred. It seems like it might have begun last June, but this year, bonds have traded in a manner that's inexplicable, unless they really are the canary in the coal mine.

Yes, you can say low yields are forecasting a second-half economic letdown, but nobody in the corporate world is making such statements.

Bond rotation is beginning, but considering amounts poured in over the past few years, even $178 billion wasn't alarming, but then it stopped.

The first four months of 2014 shows $58.8 billion going into mutual funds and $25.3 billion into bonds. But it all changed recently when $8.6 billion was pulled out of domestic mutual funds, while $14.0 billion trickled into bonds. In fact, when just looking at fund flows into domestic funds only $25.3 came in from June through December last year.

The Reversal

That intra-day reversal yesterday was a huge buy signal, and that makes me think we could begin to see panic buying. The public that hates the rally, or didn't know it existed, will be lured in by the action. (The Doom and Gloom crowd will never get into the action anyway, but at some point, they understand that as important as book sales have been, they are sounding like the boy-who-cried-wolf might catch them. Although, amazingly in the past, being a half-dozen years early didn't stop the victory laps or best sellers.) My theory is based on human history and human nature.

Eventually, in the aftermath of a crash, run-of-the-mill asset rebounds have to go through a phase that sees little public interest or consumption, while fair value is reached and then later, once these same assets are overvalued, it is then the public becomes interested. I suspect this has to be a duel event with more people entering the stock market while consumers begin to tap more credit for purchases. Large purchases and investments (business expansions and start-ups) will need cooperation from financial institutions.

Jobs Report

The numbers came in more or less as expected, lifting stocks a little higher in premarket trading, but not with a lot of conviction. It would seem that the result is no change at the Fed, which will continue to taper its reckless quantitative easing program about keep in place zero percent interest rates. Yesterday, the market was shaky and indecisive in the first hour of trading, and then stocks took off.