The correlation between bonds and stocks has never been higher. In a 'normal' world, bond prices and stock prices are strongly inversely correlated (red shaded region in lower pane below) but the last few weeks have seen a massive regime shift (in fact the biggest shft in history) as the entire financial market becomes captured by central bank idiocy.
(Click on image to enlarge)
While this is interesting from a historical perspective, the question is "so what?" Well, the last few times that bonds and stocks have risen or fallen together with such co-dependence has not ended well for stocks...
- May 2004 S&P -6.2%
- March 2005 S&P -8.1%
- May 2006 S&P -7.8%
- Sept 2006 S&P No Drop
- June 2007 S&P -12.2%... then crash
....Post-Crisis
- July 2013 S&P -7.9%
- March 2015 S&P -3.8%
- Dec 2015 S&P -14.1%
And with month- and quarter-end looming after an exceptional stock move, we suspect rebalancing flows will not be kind to the sentiment-creating stock market...
(Click on image to enlarge)
but then again, Yellen, Kuroda, and Draghi may have something to say about that - no matter what.
Comments
Log in or sign up to join the conversation.