At the beginning of the week, Asian markets sold off on the poor U.S. payrolls number from last Friday. The CurrencyShares Japanese Yen Trust(FXY) spiked higher as a result and continued to rise as U.S. markets paused ahead of earnings.
After the early week selloff, U.S. equities reversed course, breaking out to the upside by Wednesday. The S&P 500 index had been in a consolidation pattern since late December, which made the breakout to fresh highs even more significant.
The move higher came on strong retail sales, but underlying technical factors appeared to be really driving the price action. Both the long-dated Treasury bond index and U.S. equities broke higher alongside one another. That reintroduced the strong positive correlation of the two assets that has been a characteristic of the quantitative-easing era.
The idea has been that the Federal Reserve would artificially keep interest rates low by providing excess liquidity. That belief has driven equities higher from their bottom in 2009, and the removal of stimulus was supposed to cause stocks to fall.
Last month, the Fed said it would reduce its monthly bond purchases, but equities continued to rise, even as interest rates increased. Economic data and corporate results continued to be firm, which led investors to believe that Fed support was no longer needed in the current environment.
Sentiment quickly reversed when the jobs number came in well below estimates. Analysts became worried that the U.S. economy wasn't ready for stimulus to be fully removed by the end of 2014. That was again confirmed on Thursday, as continuing jobless claims remained at elevated levels.
Similarly, bank earnings were mixed this week. Goldman Sachs(GS) and Citigroup(C) missed estimates on weak bond-trading revenue, while Bank of America(BAC) and JPMorgan Chase(JPM) beat expectations. The varied results have added fuel to the debate of whether the U.S. economy is really strong.
The mixed economic numbers and corporate results have caused analysts to reassess their views on the importance of Fed support. Now, market observers don't expect the Fed to reduce its bond purchases by as much or as quickly as they expected a few weeks ago.
The recovery remains gradual, and for now, low interest rates continue to be the policy of choice. That should continue to help equities and long-dated bonds.
At the time of publication, the author had no position in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.