Up until September the main driver in the US stock market has been the institutions. Then retail investors started piling in as usual at the tail end of a long rally. The chart above shows recently increasing yields in US Treasury Bonds, which until recently have been desperately low pushing institutions into equities. Now institutions will shift into Treasuries as yields rise based on (1) End or tapering of QE (which the Trump tax cut was supposed to disguise) (2) End of investment by China in Treasuries (due to a negative view on the Trump tax cut), which means that the Fed will now have to buy most new issues.
Note that OFR Annual Report to Congress December 2017 (OFR= US Government office for financial research) on page 12 states that stock market valuations (see Market Risk – valuations, risk premiums) are extremely risky (bright red). Traditionally the Fed Reserve System doesn’t care about retail investor behaviour, merely what happens to the main institutions. This time as they are going to be lumbered with funding the US deficit by themselves ( without China, and which the Trump tax cut has made worse by widening the deficit), thus buying most of the weekly Treasury issues: they are going to want institutional support for the Treasury market.
30th January update: The benchmark 10-year U.S. Treasury yield touched 2.7 percent on Monday and early this morning it returned to that level. The sharp rise in Treasury yields produced a 177 point drop in the Dow Jones Industrial Average yesterday. As of 10:07 a.m. this morning, the Dow had lost an additional 334 points. Many market watchers see even more dangerous headwinds for the stock market if the 10-year Treasury reaches a 3 percent yield.