Stock/Bond Correlation
Simple Bond Model Says “SELL”
In our minds, the big story is not the nominal new highs in the blue chips, but rather the rapid changes now occurring on both an “intra-market” and “inter-market” basis. In the case of the latter, we have an important new signal from a simple correlation model we developed earlier this year.
Odds & Ends
Here are some brief follow-up notes on topics covered in recent months’ Green Books.
Correlations Are Worthless, Except This One
We’ve never understood investment quants’ desire to project correlations among assets. Such correlations are inherently unstable.
Stocks Not Yet Yielding To Yields
Regardless of how it’s measured, the liquidity available for global stocks continues to run off.
New Highs In Stocks Have Some Unwanted Company
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In recent commentaries, we’ve highlighted the surprising number of U.S. stocks making 52-week lows on both a daily and weekly basis, a sign that the market’s push higher has become more fractured. While pondering the significance of those lows, however, we missed a new 52-week high last Friday in a series we think will be especially critical to the stock market’s near-term fortunes: the 10-year U.S. Treasury bond yield. Specifically, the yield matched its weekly closing high of 3.07% posted on May 18th.
Where The Bear Lingers
While the next recession could be caused by a variety of factors, we suspect the recovery will eventually end like most post-war expansions, only after a significant rise in interest rates.
Rising Rates: Not Always A Death Knell
While the Dow Jones Bond Indicator has stood the test of time, history shows that rising bond yields are not always a bearish stock market phenomenon.
Bonds & Cyclical Stocks “Decoupling”?
The relationship between U.S. Treasury bond yields and the relative performance of cyclical stocks versus their defensive consumer counterparts appears to be changing.