"The End of QE Trade"

Before this goes any further, let me just reiterate that I am not calling for the end of Quantitative Easing, I am not fighting the Fed, and I don't care what Ben Bernanke says or doesn't say. I'm only looking at price. That's the only thing that matters to me.

Now, with that said, I think this is one of the more fascinating developments happening in this market. Let me explain.

All in theory, the end of QE is positive for yields right? Because if the Fed stops trying to lower rates, it is step 1 to higher rates - which is therefore bearish for US Government Bonds. This would also then be positive for US Dollars. Meanwhile, if rates are heading higher there is less of a rush towards dividend paying stocks. Bond investors can go back to buying bonds again. Wouldn't that be something?

So here is what's happening right now:

• REITs, let's use $VNQ the Vanguard REIT ETF Index, is down 6.5% since last Wednesday's all-time highs

• Utilities, we'll use $XLU the SPDR Utilities Index ETF, is down 5.7% since last Wednesday's highs, down 7.8% for May

• US Treasury Bonds, let's use the 30-year $ZB_F, is down 5.5% since the May 1 highs

• Interest Rates, as defined by the benchmark 10-yr yield $TNX, is up to 2.13% from a low of 1.61% on May 1 - Rates are currently sitting at 52-week highs

• US Dollars, we'll keep it simple and use the Dollar Index Futures $DX_F, are up 3.5% since May 1 - a lot for a currency. Last week the Dollar Index hit its highest levels in almost 3 years.

And the biggest question this whole time has been how stocks would react to this "end of QE". I see two schools of thought: 1) no more QE is bad for stocks because the juice is gone and supposedly the only reason stocks are up is because of the easy money. 2) The end of QE could only come if the economy is so good and stocks are stable enough to handle that, which in theory is good for stocks isn't it?

Regardless of all the reasoning, the question still stands - is the end of QE good or bad for stocks? Well I'm not sure if this is the end of QE or not. I'm just calling it like I see it and the above mentioned assets are trading as if it is, which to me is the only thing that matters. And the market has spoken, or is speaking. Although we've seen some added volatility over the past week, you still need to give stocks a pat on the back. The S&P500 is sitting half a percent from all-time closing highs.

I'm not saying there is a trade to be had here. But I think it's worth pointing out how this market is behaving and what it could possibly be trying to price in. I'm probably most surprised by how well stocks have held up in this environment. Let's see if this continues. Interesting no?

What do you guys think?

Tags: $SPY $UUP