Higher treasury yields = selling of treasuries. Selling of treasuries = proceeds that typically get reinvested in equities. Reallocation of funds from the bond market to the stock market = exactly what we’ve been witnessing for the past several months, a raging bull market in equities. Economic reports have been mostly strong and/or strengthening since mid-summer and that economic strength is sending money from the bond market to the stock market. I see it continuing in 2018. Here’s a chart that compares the TNX to the benchmark S&P 500:The blue directional arrows really says it all. When we experience a period of rising treasury yields, the stock market explodes. This chart dates back to 2000 and through two bear markets. The really interesting part is when treasury yields are declining. The S&P 500 either downtrends in a bear market or struggles just to stay flat with increased volatility. The relationship between the bond market and the stock market is a must understand for everyone that invests in the stock market.The correlation above is mostly above zero and spends considerable time at or near 1, suggesting a very strong positive correlation between the direction of the TNX and the direction of the S&P 500. There are periods when the S&P 500 rises while the TNX declines, which is easily explained. New money coming into equities can send the S&P 500 higher. Strength in the S&P 500 doesn’t only come from money rotating from bonds. But history tells us that when the TNX is rising, the S&P 500 soars.The moral of this story? Watch TNX resistance at 2.62%. If we see a breakout, it’ll likely mean another huge advance in the S&P 500 in 2018, despite the already overbought conditions.