Stocks vs. Treas. Bonds & "Sell In May"

Stocks have traditionally been vulnerable as springtime wears on because that is normally
when the Fed is completing the unwinding of liquidity it has provided seasonally for the
prior holiday season. Sometimes the drought is made worse by larger than seasonally expected
tax payments. Even with the QE programs, M-1 money supply has had flat spots in the spring.
Now as it turns out, the weekly leading economic indicators have been weak or flat during the
spring months since 2010. Seasoned traders will sometimes take money off the equties table
and plunk it down in longer dated Treasuries during these periods. SPY Spyder vs. $USB

I point this out because M-1 has been flat since late Feb. this year and also because the
weekly leading economic indicators are showing a little weakness here owing primarily to
a jump in initial jobless claims. So the bond market has firmed not only because basic
liquidity is tighter but also because the QE taper is very well underway, with the latter
reflecting concern among some players that economic growth may slow down the road as
a result.

I do not want to make big deal out of this seasonal liquidity and economic indicator weakness
but you should be aware of it. The longer term issue -- whether the taper of QE down to zero
will adversely affect economic growth down the road -- needs a few more months of
evidence from incoming data before it becomes interesting.