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Great Graphic: Stocks and Bonds

Summary:

 

The relationship between the change in Us 10-year yields and the change in the S&P 500 has broken down.

The 60-day correlation is negative for the first time since late Q2 2015.

It is only the third such period of inverse correlation since the start of 2015.

 

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.

US 10-year yield and S&P 500

(see more posts on S&P 500 Index, )
US 10-year yield and S&P 500

US 10-year yield and S&P 500 - click to enlarge. - Click to enlarge

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Marc Chandler
He has been covering the global capital markets in one fashion or another for more than 30 years, working at economic consulting firms and global investment banks. After 14 years as the global head of currency strategy for Brown Brothers Harriman, Chandler joined Bannockburn Global Forex, as a managing partner and chief markets strategist as of October 1, 2018.
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