The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
It's a good sign that stocks (and to a lesser extent gold) are stabilizing. It's probably premature to say that Monday was the start of a much-needed market correction.
But make no mistake. People are still nervous. The terror attacks in Boston are a reminder of just how volatile the world is.
The CBOE Market Volatility Index -- or VIX ( VIX) for short -- surged more than 40% Monday. The VIX is often referred to as Wall Street's fear gauge and big spikes can be an indication that investors are extremely worried.
The VIX did pull back more than 15% Tuesday as stocks rallied. But it's still higher than where it was at the start of trading Monday. So it's not as if investors have completely swept aside concerns about Monday's market sell-off just yet.
"There is anxiety and we probably will see that for awhile," said Randy Frederick, managing director of active trading and derivatives at Charles Schwab.
CNNMoney's own Fear & Greed Index, which looks at the VIX and six other market indicators, is also showing that investors remain on edge. The index hit Fear territory for the first time late Monday. Even with Tuesday's rebound, the index was still just in Neutral. And it remains a little closer to Fear than Greed.
But the clearest signs that investors are still jittery are coming from the bond market. Long-term Treasury yields are just 1.71%. That's not far above their historical lows. Investors have continued to buy bonds (pushing their yields down in the process) even though it's been a hot year for stocks.
Given how well stocks have done, you'd expect bond yields to be surging. That's not the case.
Investors aren't really pulling money out of bonds to put into riskier stocks. They're just buying stocks in addition to bonds.
"People seem willing to take on a little more risk," said Sharon Stark, fixed income strategist with D.A. Davidson. "But investors went from putting money under the mattress to putting it in bonds and more conservative sectors in the stock market. This really shows the lack of direction and nervousness still in the market."
The huge rally in Coca-Cola (KO) Tuesday, following a modest earnings beat, is another example of the love affair with yield.
Shares of Coke were up more than 5% Tuesday. Are investors really excited by the fact that Coke's sales volume rose a meager 4%? No. They appreciate the steady growth, but really love that Coke has a dividend that pays nearly 3%.
So what's next for stocks? Probably more of the same.
As long as the Federal Reserve is out there buying a huge chunk of bonds every month, long-term rates will stay low and investors will continue to be enamored with dividend stocks.
"This bull market is different than many others," Frederick said. "It's been driven by extremely low -- and you could say artificially low -- interest rates. So stable, dividend-paying stocks are doing well."
"There is not an appetite for growth stocks that don't pay dividends and there probably won't be until we have higher interest rates," he added.
But don't hold your breath.
Stark said there is no reason for the Fed to pull back on its so-called quantitative easing program anytime soon, not with questions lingering about the strength of the job recovery and the absence of any inflation. She thinks the 10-year Treasury yield could fall as low as 1.6% in the coming months and will struggle to move any higher than 2%.
With that in mind, the Fed will probably keep juicing stocks with low rates for as long as humanly possible. That's all well and good for now. But doesn't it also reflect just how tepid this supposedly roaring bull market is?
The economy is still very fragile. Europe remains a slow motion train wreck. Growth in China appears to be slowing again. North Korea is a huge wild card. And the tragedy in Boston just adds to all the uncertainty.
If the Fed and other central banks weren't being so aggressive, where would the Dow and S&P 500 be? The Fed is pushing investors into stocks whether they want to be there or not.
Investors are definitely still fearful. But it's getting harder to figure out what they are more afraid of: missing out on further stock market returns or the fact that the economy still stinks and that the world is a scary place.
Political gridlock in Italy is unhinging investors.
Investors worry the results of Italy's election could wind up undermining the progress that Italy has made in overhauling its troubled economy.
"It was the worst possible outcome, feared by market participants and European policy-makers alike," said Daiwa Capital Markets European economist Tobias Blattner.
U.S. stocks spiraled downward in a late-day frenzied sell-off Monday. European markets followed their cue and sold off sharply early Tuesday.
CNNMoney's Fear MORECatherine Tymkiw - Feb 26, 2013 10:15 AM ET
Who's worried about the fiscal cliff? Who isn't. One look at the market's fear gauge, the VIX, and it's pretty clear that investors are among those feeling some agita.
Over the past month, the VIX has surged nearly 30%, hitting its highest level in months. And with mere days left for President Obama and Congress to reach a deal on the fiscal cliff, it's no wonder investors are bracing for MORECatherine Tymkiw - Dec 27, 2012 11:55 AM ET
Remember the VIX? Probably not. Wall Street's measure of volatility has been pretty forgettable in 2012.
Not on Friday. The CBOE Volatility Index (VIX) spiked by as much as 10%. The index itself was particularly volatile Friday, closing up just 1%.
Congress and its inability to come together over the fiscal cliff wasn't the sole trigger of the heightened volatility. Friday was also quadruple witching day -- one of four trading days MOREMaureen Farrell - Dec 21, 2012 2:37 PM ET
Investor malaise has settled in like a hot summer day. And it's just as uncomfortable.
"Our volume is as muted as it can be and the VIX is down sharply," said John Kosar, director of research at Asbury Research in Schaumberg, Ill.
Kosar is talking about the Chicago Board of Trade's volatility index (VIX), Wall Street's notorious fear gauge. It has barely budged above 20 during the past month. It is now MORECatherine Tymkiw - Aug 7, 2012 9:49 AM ET
Who knew Europe could wield so much power? A deal, and not even a very concrete one, is sending investors on a buying spree.
Related: Euro 'breakthrough' is tenuous
Stocks around the globe rallied on the surprise announcement, which could mark the first baby step toward creating a banking, and ultimately fiscal, union. Of course, there are about a thousand details that need to be hammered out but for now everyone is MORECatherine Tymkiw - Jun 29, 2012 12:58 PM ET
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