Stock/Bond Correlation

US equities and bonds have been rallying together pretty consistently since the 2009 lows. As long as the S&P 500 is rising and US bond yields are falling, this chart will steadily advance. Rising equities and falling bond yields (rising bond prices) are a boon to investor portfolios and balanced portfolios holding a mix of stocks and bonds have benefited handsomely over the last decade as a result. 

We may now, however, be at an important inflection point, where both stocks and bonds begin to decline (as bond yields rise). In this environment, a balanced portfolio of stocks and bonds would suffer a double blow. Add in a decline in the USD versus EUR, and the potential for capital loss is significant. This chart is one to watch very closely in the months ahead. 

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