Thursday, March 04, 2010

Observation Regarding Intermarket Correlations

One of the recent challenges of markets has been a breakdown of correlations that were tight in 2009. Here we see from the Barchart heat map that commodities have been weak, while stocks have been in a tight range. Similarly, we've been seeing stock strength recently when the U.S. dollar and Treasury prices have been firm--opposite the patterns we were used to seeing last year. While the "risk trade" has far from gone away, we're starting to see greater differentiation of price action by asset class and region. This has particularly been the case during periods of rising stock market prices, a useful indicator in itself.