SPX driven down by treasury yields
The treasury yield (orange) is down a lot during the last month. There might be a bounce up, but the trend should continue to be down (inertia). The SPX cycle is still down so we can expect a few more days of selling pressure before the yield (and SPX) moves up (reference to cycles below).
The 10-2 yield curve is set to invert early next year (simple trend progression) and SPX do not like such uncertainty. When the yield goes down, SPX will follow. People move money from stocks to bonds, I think. I don't know macroeconomics, but that would seem to be the main reason behind the positive correlation betweeen SPX and yield. However, this correlation is sometimes punctured by unexpected changes in yield or SPX, Think about new information into the system. If the Fed stops tightening its interest rate policy that would be an unexpected good thing for SPX (negative correlation). However, once the new equilibrium is reached the positive correlation will come back.
Cycles:
The 10-2 yield curve is set to invert early next year (simple trend progression) and SPX do not like such uncertainty. When the yield goes down, SPX will follow. People move money from stocks to bonds, I think. I don't know macroeconomics, but that would seem to be the main reason behind the positive correlation betweeen SPX and yield. However, this correlation is sometimes punctured by unexpected changes in yield or SPX, Think about new information into the system. If the Fed stops tightening its interest rate policy that would be an unexpected good thing for SPX (negative correlation). However, once the new equilibrium is reached the positive correlation will come back.
Cycles:
Not
The yield is down since October. From 3.2% to 2.8%. Momentum (inertia) means that the best prediction is that yield will continue down. There are shorter episodes with a broken correlation. This happened end of November and it is happening right now. The stock market likes to rally after having fallen quickly (oversold), but reality catches up. The yield signals another downturn in the stockmarket.Can we forecast the yield? Partly. Momentum is well documented in academic finance. So trend-based forecasting is possible. Can we forecast when the trend reverses? That is more difficult. Always a need to be openminded and data-dependent
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