Great Graphic: Stocks and Bonds

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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.

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