10-Year Treasury Yield Tops 2.5%, Hurting Bullish Case for Stocks Says Baker

Simon Baker, head of Baker Ave Asset Management, is what could be called "conditionally bullish" on the stock market right now. As long as yields on 10-year Treasuries (^TNX) stay below 2.5% he likes stocks; above that he's not so sure. Based on today's trading, the stock market agrees. After seeming to stabilize all morning, a swift spike to just under Baker's high-mark took a quick 1% out of the S&P 500 (^GSPC).

"What you're really seeing in the market is just deleveraging," says Baker in the attached clip. If there was a greater genius motivation behind Bernanke's words Baker says it was an effort to take some of the steam out of the Emerging (EEM) and FX markets.

As tactical attacks go, a 3% slide in equities is relatively minor collateral damage if it prevents a collapse later. Then again Baker is in the minority in thinking that Bernanke has a plan extending much beyond his departure at the beginning of next year.

Regardless of the FOMC's motives Baker thinks stocks are an "absolute buy" as long as rates don't creep much higher. "The one thing that can trip up this market is if bond yields go up and it starts to get out of control of the Fed."

Baker notes that $13 trillion in Fed debt is coming up over the next five years; half of which will be refinanced. Suffice it to say it's in the FOMC's best interest to keep rates from exploding higher. As long as yields on the 10-year stay in his projected 2.3 - 2.5% range, Baker is going to be adding equity exposure on weakness.