As market participants, we are sensitive to changing inter-market relationships. This Great Graphic, from Bloomberg shows the correlation between stocks and bonds. In particular, it depicts the 60-day rolling correlation over the past year of the change in the US 10-year yield and the change in the S&P 500.
As recently as the beginning of Q3, the correlation was above 0.70. It remained above 0.60 until the end of August. The correlation is now inverse (-0.15) for the first time since the April-June 2015 period.
The inverse correlation is not statistically significant. The point is that the previous relationship has broken down. This is a warning sign to investors of a potential shift in the investment landscape. There have only been three periods since the beginning of 2009 that the correlation between the change of the S&P 500 and the change in the 10-year yields has been inverse: now, the two-month period last year and a six-month period that in bounced in and out of inversion in the second half of 2013.
Opinions expressed are solely of the author’s, based on current market conditions, and are subject to change without notice. These opinions are not intended to predict or guarantee the future performance of any currencies or markets. This material is for informational purposes only and should not be construed as research or as investment, legal or tax advice, nor should it be considered information sufficient upon which to base an investment decision. Further, this communication should not be deemed as a recommendation to invest or not to invest in any country or to undertake any specific position or transaction in any currency. There are risks associated with foreign currency investing, including but not limited to the use of leverage, which may accelerate the velocity of potential losses. Foreign currencies are subject to rapid price fluctuations due to adverse political, social and economic developments. These risks are greater for currencies in emerging markets than for those in more developed countries. Foreign currency transactions may not be suitable for all investors, depending on their financial sophistication and investment objectives. You should seek the services of an appropriate professional in connection with such matters. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete in its accuracy and cannot be guaranteed.
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