A simple question deserves a simple answer. Are 10-year yields headed higher or lower through the balance of this year?
If you believe long-term interest rates are headed higher, sell precious metals and the broader commodity complex and buy the dip in equities – especially the banks.
If you believe long-term interest rates are headed lower, sell the banks and the SPX and buy the dip in commodities – especially precious metals.
Our chorused refrain throughout 2014 has been that 10-year yields became stretched to a relative extreme last year – despite their low disposition – and were poised to retrace. As the precious metals sector takes it on the chin on yet another tax day, we urge participants to appraise the bigger picture. While the equity markets should bounce over the short term, we expect they will once again roll-over with long-term interest rates.