Last month, in ‘The Correlation Conundrum’, I noted that stocks and bonds have been rallying together since the 2009 lows and delivering strong positive returns for both equity and fixed income investors over the last decade. This trend, however, peaked in 2016, has drifted lower over the past two years and is now at risk of breaking meaningfully lower. With the recent weakness in both stock and bond markets in October, the chart below, measuring the relationship between the S&P 500 and the US 10-year yield has broken lower by -8% from 95 to 87 in the last four weeks. The multi-year head-and-shoulders topping pattern is rolling over. Stocks and bonds in the US are now falling together, leaving few places to hide for the average investor who typically holds a balanced fund of stocks and bonds. Gold is the key missing ingredient and that penny will drop as the gold bull market develops in the years ahead.
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