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This Could Be A Problem...
09-15-2016, 12:11 PM,
#1
This Could Be A Problem...
This Could Be A Problem...

<p><span style="text-decoration: underline;"><strong>The correlation between stocks and bonds has surged to its highest (and positive) since the peak of the stock market in 2007...</strong></span></p>
<p><img src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2016/09/15/20110915_corr1_0.jpg" width="600" height="292" /></p>
<p>&nbsp;</p>
<p><a href="http://blogs.wsj.com/moneybeat/2016/09/14/relationship-between-stocks-and-bonds-at-lowest-since-2007/">As The Wall Street Journal notes, </a><strong>bonds and stocks have both gotten clobbered in recent days, reversing the traditional relationship between the two in a way that’s only happened during shifts in Federal Reserve policy over the past decade.</strong></p>
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<p>Many associate a rising stock market with falling bond prices, and vice versa, since an improving economy that boosts shares can lead investors to demand fewer safe bonds like U.S. Treasurys. But that<strong> flipped very sharply during this most recent selloff, with falling stocks coinciding with falling bonds.</strong></p>
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<p>...</p>
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<p><strong>That’s showing up in the correlation between the S&amp;P 500 index and 10-year Treasury yields.</strong> The one-month rolling correlation between the two was at minus-0.59 on Tuesday, suggesting falling equity prices coincide with higher yields and lower prices. The correlation is the most strongly negative since 2007, and a swift reversal from more than 0.80 in the wake of Britain’s vote to leave the European Union, according to data from Credit Suisse equity derivatives strategist Mandy Xu.</p>
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<p><strong>But over the past decade, the only times the correlation between stock prices and bond yields became so negative in such short order were during shifts in Fed policy. </strong>A similar spike happened in December of last year when the Fed first lift interest rates, as well as in December of 2013 when the Fed started trimming its bond-buying program, according to to Credit Suisse.</p>
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<p><strong>Other such spikes came when the Fed started buying bonds in November 2010 and in July 2007 when the central bank started easing monetary policy as the financial crisis began.</strong></p>
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<p>Which has sparked the biggest drop in Risk Parity funds since August 2015's crash...</p>
<p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2016/09/15/20110915_RP1.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2016/09/15/20110915_RP1_0.jpg" width="600" height="304" /></a></p>
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<p>At the same time, breadth in the market is notably weakening... which has not ended well before...</p>
<p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2016/09/15/20110915_breadth.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2016/09/15/20110915_breadth_0.jpg" width="600" height="316" /></a></p>
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<p>Finally we leave it to David Rosenberg, chief economist and strategist at Gluskin Sheff &amp; Associates, to sum up the market currently...</p>
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<p><span style="text-decoration: underline;"><strong>“How to describe the current market backdrop? In a word: jitters,”</strong></span><span style="color: #333333; font-family: &quot;Chronicle SSm&quot;, serif; font-size: 16px; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: normal; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; display: inline !important; float: none;"><span class="Apple-converted-space"> </span></span></p>
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<p><em>Charts: Bloomberg</em></p>


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