One of the key themes of 2014 was this notion that the U.S. was decoupling from the world. The narrative – Japan may be in recession, Europe in a deflationary collapse, and China slowing, but the U.S. is strong and is an island unto itself.

The narrative, though, is not the same as reality. While the U.S. economy has certainly fared better than its global peers, an “acceleration” we have yet to see, with real GDP still showing the slowest post-war recovery in history and real wage growth telling the same story.

What, then, are investors basing their decoupling theme on? Very simply, the U.S. stock market, which to put it mildly has been trouncing its global peers since 2010. Five years of outperformance is a long time and enough to build a strong case for just about anything.

If we look away from just the large cap stock indices, though, the U.S. story looks more like Europe and Japan than most investors may want to believe.

Falling Inflation Expectations

First, inflation expectations in the U.S. have been falling precipitously over the past year with breakeven rates (2-years through 30-years) back to their lowest levels since 2009.

Yield Curve Flattening

Second, the yield curve in the U.S. is flattening, down to a 129 bps spread between the 10-year yield and the 2-year yield.

Yields Plummeting

Third, like Europe and Japan, U.S. long duration yields have plummeted over the past year. The 30-year Treasury yield is at a new all-time low, below the crisis lows of 2008.

Credit Spreads Widening

Fourth, credit spreads in the U.S. are widening, with the high yield index showing a 542 basis point spread, up from 388 basis point one year ago and 335 basis points last June.

Defensive Sectors Leading

Fifth, within the U.S. stock market it is not cyclical but defensive sectors (Utilities, Health Care, and Consumer Staples) that have been outpacing the S&P 500 since the beginning of 2014.

Leading Indicators Turning Down

Sixth, if we look past lagging indicators like GDP and focus instead on leading indicators, they are telling a different story.

The growth rate on the ECRI Weekly Leading Index has moved into negative territory, at its lowest level in three years.

Similarly, the U.S. composite PMI Output index is showing its slowest rate of expansion in 14 months.

Unprecedented Fed Action (0% Policy)

Lastly, the U.S. Federal Reserve continues to behave as if we are very much like Europe and Japan, holding interest rates at 0% now for over six years.

Entering the year, many were predicting a rate hike by mid-2015, but the expectations for a Fed rate hike continue to be pushed out  as the stock market ticks lower. The futures market is now anticipating the first rate hike will not occur until October 2015 and we are not far from shifting to December 2015.

The Decoupling Myth

Collectively, these factors suggest that the U.S. is not immune to a global slowdown. Indeed, it is already starting to feel the effects if we look at anything except the S&P 500. From easy monetary policy to plummeting yields and inflation expectations, the U.S. looks very much like its global peers. Moreover, the widening of credit spreads and outperformance of defensive sectors suggest that market participants are already starting to appreciate this and position accordingly.

What we have yet to see is large cap U.S. stock indices reflect this risk but as I wrote recently, that too may be changing here. Narrative follows price. If the v-bottom pattern that has persisted in the U.S. since the beginning of 2013 ends in the coming weeks, expect confidence in the narrative of “U.S. decoupling” to end with it.