Far too much is made of the connection between stocks and bonds.  So let's make some more of it, shall we?

Seriously though, leaning on this 'stock lever' connection is a matter of convenience when it works to explain what's going on in markets. The underlying premise is that stocks represent risk and bonds represent safety.  As investors shed risk, they sell stocks and buy bonds, causing stock prices and bond yields to move together (the notion of the "lever" would pertain to the PRICE of one acting as a lever on the price of the other).  Sometimes it's valid, and investors are actually moving money in such a manner.  Other times--perhaps even MOST times--no one gives a damn.

But the reason no one gives a damn is important.  The not giving of damns had most to do with the trading environment over the past 6 years where traditional relationships broke down due to the unprecedented monetary policy.  In a world with zero interest rates, Fed bond buying, and an economy that hit as close to rock bottom as we've been since the 30's, it was the perfect environment for stocks and bonds to rally together. 

So it stands to reason that with the Fed considering raising rates and with no new bond buying, perhaps we're due for a change in the prevalence of the stock lever.  In other words, perhaps we'll see more of it these days.  To whatever extent we do, we should be keenly interested in the current technical situation in stocks.  At the moment, stocks look like they might be set for  a big swoon.  It could end up being the first big swoon they've had since 2009, or it could be a very convincing head-fake, like 2011.

If we don't repeat 2011's history, and if stocks are going to commit to a larger-scale sell-off, bond markets are in a much better position to capitalize on the potential 'lever effect.'  Bonds aren't looking nearly as rich as they were in 2011 after having just completed a dive-bomb to the lowest yields that any living person could remember.

Bottom line, it's hard to see a way out of this scenario for stocks.  If the Fed hikes, that's bad for stocks.  If the Fed doesn't hike, it's because they're too worried about global growth, which is also bad for stocks.  The biggest risk to this assessment is how obvious it is.