The Federal Reserve's policy of zero-percent short-term interest rates will likely persist for at least another couple of years - or even a lot longer.
That's good news for equities. "What does it mean when the short-term interest rate is zero for a long period of time? Asset classes have a long and volatile, but favorable, upward bias," says David Kotok of Cumberland Advisors. That means stocks should continue higher.
That said, Wall Street is still taking bets on when the Fed might scale back, or taper, its $85 billion-a-month bond purchase program. Here's a sampling from different banks:
Goldman Sachs: March 2014 most likely, December 2013 possible.
Barclays: March 2014.
Citigroup: first taper in March 2014, ending in September 2014, but could start anywhere between December 2013 and June 2014.
JPMorgan: taper in April 2014.
Nomura: taper to begin in first quarter 2014.
Jefferies: December 2013 "still highly unlikely."
HSBC: December taper a 50-50 proposition.
ING: Fed in no rush.
Cantor: taper probably March 2014.
Bank of America: Taper in January 2014.
UBS: January 2014 taper.
Credit Suisse: $10 billion taper in January 2014, then "growing intensity" until end in September 2014.
Who knows if Fed policies are to blame, but the correlation between U.S. government bonds and stocks is startling. Bonds are acting more like equities than at any time since before the credit crisis.
For every 1 percent change in the Standard & Poor's 500 Index, 10-year Treasuries are moving 0.024 percent in the same direction, for the first time since July 2007, according to Bloomberg data.
Prior to this month, this gauge averaged minus 0.12 percent over the past decade, meaning that bonds historically moved opposite to stocks.
Translation? Investors buying 10-year Treasuries today aren't as diversified. And if yields rise to 2.8 percent by year end from 2.5 percent currently, the bonds' price should drop about 2 percent.