Via Scott Minerd of Guggenheim Securities,
“Volatility is rising and asset prices are highly vulnerable to all incoming news. Recent sell-offs in stocks and bonds indicate that the current uptrend could uncoil before the end of quantitative easing (QE). The amount of attention paid to rumors about QE highlights how vulnerable the U.S. economy is to the prospect of a tapering in asset purchases or a rise in interest rates.
This is largely because the current economic expansion is dependent on further gains in housing, which would be adversely affected by a material rise in mortgage rates. Between one and two percent of GDP growth is coming from housing activity. The sluggishness in the rest of the economy is evident if you remove that number from the latest reading of 2.4 percent GDP growth for Q1. This dynamic underpins the Federal Reserve’s current dilemma over how to normalize monetary policy. I do not anticipate an easy ride for policymakers or investors over the coming months.”