Stocks are defying conventional wisdom - and their strange behavior offers a huge hint as to what's really driving the market

AP Photo/Bebeto Matthews

• The stock market is doing something unexpected that's bucking forecasts investment experts have been making for months.
• The ongoing dynamic goes a long way towards showing what's truly driving equities.

The stock market isn't obeying the playbook laid out by investment experts.

For months, so-called yield proxy stocks have been viewed as the most at-risk in a rising-interest-rate environment. After all, a huge part of their appeal stems from the investor payouts they offer, usually in the form of dividends.

Instead, the opposite has happened. As Treasury yields have climbed above the closely-watched 3% threshold, fueling speculation of faster rate hikes, yield proxies - specifically utility and telecom stocks - have outperformed the market.

Not bad for a group once marked for death as soon as interest rates started rising.

As the chart below shows, over the last two days, they're the only two sectors in the S&P 500 that have gained. And it's not particularly close.

Business Insider / Joe Ciolli, data from Bloomberg

With all of this established, the key question becomes why yield proxy stocks are behaving in unexpected fashion. There are a couple of possibilities.

First and most likely, investor nerves are rattled, so they're undergoing a defensive rotation out of riskier industries like tech and into safer areas like utilities and telecom. This desire for safety would seem to be outweighing any ill effect of higher interest rates on yield proxies. Meanwhile, tech is holding up its end of the bargain, leading the market lower for a second straight day.

It's also possible that traders are using the negative sentiment creeping into markets as an excuse to pare positions. Although US stocks are currently mired in a rough patch, they're still just 9% from record levels reached in late January.

Whatever the reason, we can unequivocally agree that the staid narrative of yield proxies coming under pressure as rates rise is flawed. There are clearly other forces afoot, and traders would be best advised to survey all possible options.