Short rates keep rising, long rates may be inclined to follow, but the stock market doesn’t seem to mind. In fact, the big stumble so far this year through March 30 among the major asset classes seems to be commodities, as the chart below shows.

Indices/Funds: S&P 500, Lehman Bros. Agg Bond, ML US High Yield Master II, MSCI EAFE, MSCI EM, Russell 2000, Pimco Commodity Real Return Fund A, Pimco EM Bond Fund, Vanguard Inflation Protected Securities Fund, Vanguard Prime MM Fund, Pimco Foreign Bond (Unhedged) A
Equity risk, in short, continues to pay off in 2006. Small-cap stocks are firmly in the lead so far this year, with emerging markets stocks close behind.
It doesn’t hurt the bullish case for stocks overall with news that U.S. corporate profits jumped 21.3% in the past year. In fact, the Department of Commerce yesterday reported that corporate profits now represent the biggest slice of national income in 40 years.
Momentum, as a result, looks set to dominate in the land of equities. Is that affecting the perpetual race between value and growth stocks? Yes, and no, depending on how you slice it.
In the large-cap arena, value stocks are well ahead of their growth counterparts so far this year, based on the Russell 1000 style indices. By these gauges, growth is up 3.44% in 2006 through March 30, well below value’s 6.26%.
But it’s a close year-to-date race over in small caps, with growth leading only by a nose relative to value in the Russell 2000 style indices: 13.96% v. 13.15%.
If Fed Chairman Ben Bernanke wants investors to err on the side of caution, he’s still got his work cut out for him. Another 25-basis-point rate hike for May?