The record high stock market may be signaling it's the best of times. But the bond market looks to be saying just the opposite: If it's not the worst of times, it soon could be.
Traders have been debating which one is right — the stock market grinding to new highs, or bonds, with yields at post-Election Day lows.
Stocks have been guided by solid earnings and still some hope that there could be stimulus coming from Washington, but Treasury yields, which move opposite price, are trading lower amid concerns the lack of inflation and sluggish economy could be a problem if the Federal Reserve raises interest rates too much.
The great divide between markets should remain a theme in the coming week, but there are several events that create the opportunity for volatility across financial markets — and all of them occur on Thursday.
Former FBI director James Comey is scheduled to testify before the Senate Intelligence Committee at 10 a.m.
Then there's the European Central Bank meeting, which has been surrounded by a swirl of speculation that the central bank could signal a pending end to some of its easy policy. That could move the euro, bond yields and stocks if the ECB signals it is getting set to pull back, though analysts do not expect anything abrupt.
There's also the U.K. election, called by Prime Minister Theresa May in the hopes it would show a mandate for Brexit.
"Fear of a European
The U.K. election was expected to go smoothly, but the Labour Party has been making gains in the polls. It's not clear May will get the majority she expected, casting doubt on how smoothly the U.K.'s negotiations to unwind from the European Union will go.
"I think this is just one episode in the drama between the euro zone and the U.K. that's going to be playing out and markets have to focus on the longer term. Who has the stronger hand and who gets what?" said Steven Wieting, Citi Private Bank chief global strategist.