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Stocks Vs. Bonds: Who's Got It Right?

It seems stocks and bonds are sending investors mixed messages.

Since late March both stocks and bonds have been attracting money with demand for stocks sending the S&P to a bull market high, while strong demand for bonds pushed the yield on the 10-year to a one month low. (Don't forget in bonds, price and yield are related inversely.)

As you may know typically, the Street doesn't see strength in both stocks and bonds at the same time. Either it's risk-on or risk-off, as the Fast Money traders like to say.

What should you make of it?

"Somebody's gotta' to be wrong and I believe it's going to be the equities," said Cortes, founder of Veracruz. In the past Cortes has pointed to weakness in emerging markets, especially China as a foreshadow of what's to come here in the States.

How's he trading?

"I'm betting against stocks by shorting the Nasdaq," says Cortes.

However, Cortes concedes many investors don't see eye to him with him.

If you don't and you're constructive on stocks right now, trader Steve Cortes recommends selling bonds rather than buying stocks. Bonds are "very mispriced" if you believe the equity rally can continue, he explained. To play it, he would be a buyer of the ProShares UltraShort 20+ Year Treasury exchange-traded fund.

Kanundrum Capital founder Brian Kelly, on the other hand, takes a different view. He would not buy the TBT, or sell bonds, right now.

"I think what the market's telling you is exactly right here. We know that 'lower for longer' is the mantra," Kelly said. "Money should be flowing into the stock market and bonds will stay flat if anything."

Kelly currently has no position in bonds, but he is long equities.

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CALL THE CLOSE

Before the "Fast Money" traders signed off, they concluded Tuesday's program with their thoughts on where the market is going and how they plan to trade it.

"I think financials will outperform on a down tape," Cortes said, adding he's a buyer of Goldman Sachs and Morgan Stanley .

Joe Terranova, chief market strategist at Virtus Investment Partners, also likes financials right now. He's going with Bank of America , though.

Finally, Kelly thinks the market could fall, but said it could be good buying opportunity.

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Trader disclosure: On May 3, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Terranova owns (XOM; Terranova owns (BAX); Terranova owns (SLV); Terranova owns (TCK); Terranova owns (APA); Terranova owns (HOC); Terranova owns (OXY); Terranova owns (UPL); Terranova owns (FCX); Terranova owns (BX); Terranova owns (V); Terranova owns (VRTS); Terranova owns (JPM); Terranova is short (NFLX); Terranova is short S&P Futures; Terranova is Chief Market Strategist of Virtus Investment Partners, LTD;
Cortes owns (CO); Cortes owns (EXC); Cortes owns (GS); Cortes is short nasdaq futures; Cortes is short EEM vs. SPY; Cortes is short F; Cortes i short Euro/Swiss

For Joe Terranova
Virtus Investment Partners Owns More Than 1% Of (ABAX)
Virtus Investment Partners Owns More Than 1% Of (AMKR)
Virtus Investment Partners Owns More Than 1% Of (CCG)
Virtus Investment Partners Owns More Than 1% Of (CASS)
Virtus Investment Partners Owns More Than 1% Of (CSVI)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (FCFS)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (KRC)
Virtus Investment Partners Owns More Than 1% Of (LDR)
Virtus Investment Partners Owns More Than 1% Of (NRCI)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (XLV)
Virtus Investment Partners Owns More Than 1% Of (XLP)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (XLE)
Virtus Investment Partners Owns More Than 1% Of (XLF)
Virtus Investment Partners Owns More Than 1% Of (XLI)
Virtus Investment Partners Owns More Than 1% Of (XLK)
Virtus Investment Partners Owns More Than 1% Of (XLU)
Virtus Investment Partners Owns More Than 1% Of (SUBK)
Virtus Investment Partners Owns More Than 1% Of (WDFC)
Virtus Investment Partners Owns More Than 1% Of (YDNT)
Virtus Investment Partners Owns More Than 1% Of DOMINO'S PIZZA UK & URL PLC
Virtus Investment Partners Owns More Than 1% Of (DRYS)

For Brian Kelly
Accounts Managed by Brian Kelly Capital own (AMG)
Accounts Managed by Brian Kelly Capital own (ANBTU)
Accounts Managed by Brian Kelly Capital own (DIA)
Accounts Managed by Brian Kelly Capital own (EBAY)
Accounts Managed by Brian Kelly Capital own (GLD)
Accounts Managed by Brian Kelly Capital own (GDXJ)
Accounts Managed by Brian Kelly Capital own (SLV)
Accounts Managed by Brian Kelly Capital own (JJG)
Accounts Managed by Brian Kelly Capital own (LMT)
Accounts Managed by Brian Kelly Capital own (MS)
Accounts Managed by Brian Kelly Capital own (RVBD)
Accounts Managed by Brian Kelly Capital own (TSN)
Accounts Managed by Brian Kelly Capital own (SU)
Accounts Managed by Brian Kelly Capital are long gold
Accounts Managed by Brian Kelly Capital are long wheat
Accounts Managed by Brian Kelly Capital are long soy futures

For Dan Dicker
*No Disclosures

For Patty Edwards
Edwards owns (AAPL) for clients
Edwards owns (GE) for clients
Edwards owns (GLD) for clients
Edwards owns (HLF) for clients
Edwards owns (MSFT) for clients
Edwards owns (SLV) for clients
Edwards owns (TEVA) for clients
Edwards owns Cognizant Tech CTSH for clients



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