As recent fund flows into domestic stock funds have slowed to a trickle, the hot money in the market may have retreated to the sidelines. Two separate questions need to be asked. Though obviously related, much can be gleaned from looking at these two questions independently. A third question about the state of overseas markets can also be raised, but detailed comment on this topic will have to wait until a later date. On the interest rate question, one must ask why rates have risen so far, so fast, except for a fear of Fed policy.
Actual inflation remains modest.
The dollar is quite strong. Capital should be flowing in. The only red flag on the horizon is the recent acceleration in the rate of growth of the money supply, but I think I'm one of the last six people in North America who looks at those statistics. There is nothing to make one think that the implied real yields are sustainable with normal capital flows. Domestic money seems to be moving into bonds, and if foreigners were willing investors through years of dollar weakness, there is no reason they should flee when the dollar is getting stronger.