Here is the latest valiant (or is that futile?) attempt to rationalize a correction for the ever expanding US equity market. But seriously, tongue taken out of my cheek, the US equity market tends to be driven by a rotating list of “tells”. At times this is the US bond market, other times economic or monetary news and other times earnings reports. And so on.
If you’re a poker player, I don’t need to explain what a “tell” is. If you’re not, in this context it means a secondary data series that traders look at to provide them with a guide for how another series, in this case, the US equity market, will behave going forward.
Since Greece’s monetary situation is once again in the headlines, it isn’t surprising to see that the market has keyed off Greek bonds for a while now. Below is a chart comparing the S&P 500 index and the 10 year Greek bond yields. As Greek bonds sell off and yields rise, the US equity market either immediately or within a very short period of time tends to weaken.
Click to see larger version of chart in a new tab:
Hat tip to Jason Goepfert
I didn’t run a statistical model of the two, I’m just showing you a “back of the envelop” chart that depicts the relationship for the past year. As we came into the summer months and then into fall last year, Greek bonds rose and their yields fell. The US market obliged and climbed higher with a few bumps along the way. In November and December 2009 as Greek bond prices spiked higher, the US market plateaued.
And again in late January we saw a huge spike up to 7.16% which corresponded with the correction in February 2010. The latest spike up has occurred just over the past few days and it has actually surpassed the January high, reaching 7.17%. As well, the spread between the 10 year Greek bonds and the German 10 year Bund is also wider than the previous peak in late January 2010. It currently stands at 4.05% but in late January it was slightly lower than 4%.
Will the market react by correcting? or will it shrug this off like it has the myriad obstacles thrown in its way?
Enjoyed this? Don't miss the next one, grab the feed or