There's more to the move in the S&P 500 than meets the eye

A topic fuelling flowing lately surrounds the event that saw the conclusion of a habitual lag the S&P 500 had found itself in by struggling to secure a daily movement of 1% or higher, a occurrence that's subsequently arrested volatility over an extended period of time.

Many would believe that President Trump had played the biggest part in calming markets fears and perhaps seen as a catalyst to accelerating stock market valuations to fresh highs.

Although some of it may be true, the Trump factor is quickly losing credence as the world settles in on the possibility of a global political shake up and various other players begin to overshadows Trump's often outlandish comments on solving world issues.

One of the participants who've stolen the limelight is Fed chair Janet Yellen whose hurriedly accelerated the central bank's ambitions of seeing interest rates at loftier levels.  

Small Caps have now given back most their post-election outperformance. $IWM $SPY pic.twitter.com/9AcxZMWb5I

— Charlie Bilello (@charliebilello) March 22, 2017 

As normalisation grips the US economy, the ease with which US equities made a spirited sprint to the top of valuations will no longer be seen as safer alternatives emerge for investors to de-risk their portfolios.

In the chart posted above on Twitter by Charlie Bilello, indicates evidence of shifts in capital have subtly shown up but only through measures of relative performance. In this insistence the weakening sector is Small Caps, the last segment of the equity market to receive optimism from bullish enthusiasm yet a great indicator of investors attitude to flirting with risk.

The discrete actions of the so called "smart money" points to a highly significant turning point in world markets, let alone the United States.

From here onwards the convictions behind setting up a fresh bull run will grow dimmer with every new challenge presented to the world economy, a consequence that isn't difficult to envision given the brazenness of the Trump administration, especially in a vulnerable environment.  

US 2-year Treasury's at an 8 Year High

If you were told six months ago that US 2-year Treasury yields would touch a 8 year high you probably would've disregarded such comment as delusional.

Fast forward to March, 6th 2017 and you would've witnessed an unbelievable turnaround in events with sentiment showcasing the incredible adaptiveness of participants to the change of circumstances having observed newly elected US President Donald Trump assume office after a shock victory over the politically experienced Hillary Clinton.

And although the tenure of the Trump administration has gotten off to a hasty start, so has the US Federal Reserve's reasoning to no longer accept the creed "lower for longer" in it's efforts to normalize interest rates.

Ironic one might feel since most other developed nations around the world grapple with economic woes of deflation and low growth; the US has become the exception.

Up until this point we've seen reactive decisions taken by the Fed who have firmly stood behind the argument of awaiting confirmation in economic indicators before acting on interest rate activity.  

The 2-year Treasury #yield has reached the highest level since August 2009 as markets start to price in gradual #Fed tightening. pic.twitter.com/XivYHPAUeW

— jeroen blokland (@jsblokland) March 6, 2017

The shift in market opinion has raised a cause for concern in questioning the independence of the Federal Reserve and whether the hastened belief that the US economy is able to sustain further hikes is truly based on this thought or rather in the interest of retaining seats on the board of the Fed.

President Donald Trump has once remarked during his candidacy that he thought interest rates were being kept artificially "low" in the interest of preserving political power.

If the Fed starts becoming proactive instead of reactive it's likely to put a hold on the economy and reveal where their political allegiance lies.

The separation of uniformity in setting interest rates amongst the largest economic nations of the world does present a risk of producing headwinds in the future and moreso if the divergence between the US and other nations grows wider, a reality which is fast becoming real.