The Relationship Between Stocks and Bonds is Causing Headaches for Traders 21 Mar 2025, 3:21 pm

The traditional relationships between asset classes – like stocks rising as bonds fall, and vice versa – are changing, making it more difficult for traders to predict market movements. 

Bonds and stocks are now positively correlated after a period of negative correlation, marking a significant shift that is impacting many 60/40 portfolios. 

This change in asset correlations necessitates a more flexible and active approach to trading, shifting away from traditional diversification assumptions and driving the need for non-correlated assets. 

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U.S. Consumer Sentiment Hits Seven-Month Low Amid Inflation Worries 19 Mar 2025, 5:49 pm

The U.S. consumer took a hit in early February, with the University of Michigan’s sentiment index dropping from 67.8 from 71.1, a seven-month low. 

And inflation concerns are mounting. Short-term inflation expectations jumped to 4.3%, up a full percentage point from the previous month, as worries about tariffs grow. President Donald Trump’s tariff push is adding to inflation uncertainty, potentially weighing on consumer spending. Buying conditions for big-ticket items took a hit, with a 12 percentage point drop from January.   

Coupled with cooling employment growth, consumers’ financial outlook is worsening. Expectations for personal finances in February dropped to their lowest point since October 2023, and confidence in the economy’s trajectory also fell. 

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Is Market Volatility About to Dramatically Ramp Up? 13 Mar 2025, 8:12 pm

The 200-day simple moving average is a key indicator that many investors use to gauge and predict long-term trends in the market. So, the fact that the S&P 500 just fell below that measure means that volatility is potentially back on the menu in the stock market. In fact, 10-day realized volatility nearly doubles when price is below this key indicator. 

Realized volatility is a critical measure of the variability of asset prices over a specified period. In bull markets, with positive sentiment and strong economic signals, realized volatility tends to drop. 

Bear markets tell a different story. Falling prices and negative outlooks can push realized volatility up, highlighting the uncertainty and sharper price swings that define riskier market conditions. 

What the recent moves in the S&P 500 say about long-term market volatility remains to be seen, but it is a measure that we’re watching as we head into spring. 

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The Bank of Japan Represents a Massive Global Macro Tail Risk 27 Feb 2025, 7:23 pm

As of 2025, the Bank of Japan’s (BOJ) balance sheet is massive, equivalent to 125% of Japan’s GDP. That makes it the largest relative size of any major central bank. 

Given that the bank’s holdings primarily include Japanese government bonds, it is also vulnerable to rising interest rates. This, combined with increasing inflation expectations, raises the potential for a simultaneous decline in Japanese government bond prices and the Japanese yen. 

The BOJ carry trade refers to a strategy where investors borrow money in Japanese yen, which typically has very low interest rates, and then invest that money in higher-yielding assets in other currencies. This can be very profitable as long as the interest rate differential remains favorable. 

However, recent actions by the Bank of Japan (BOJ), such as raising interest rates, have caused significant volatility in the markets. When the BOJ increases rates, the yen strengthens, making it more expensive to repay yen-denominated loans. This can lead to a rush to unwind these trades, causing market disruptions. 

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Are equities hitting a peak? 18 Feb 2025, 4:17 pm

U.S. households and nonprofits currently have their highest-ever equity exposure as a share of net worth.  

That holds true for both direct holdings—aka stocks, ETFs, etc.—and total exposures, including life insurance, pensions, and 401(k)s. 

However, unlike in 2022, when the economy absorbed a market drop from similar holding weights with the cushion of Covid-era savings, that financial buffer is now largely gone. 

#EyeonVolatility 

Executives Dump Shares at Record Pace 5 Feb 2025, 8:06 pm

As the S&P 500 hit record highs over the last month, insider selling by corporate executives has significantly increased, contradicting the general market optimism around potential Trump policies and economic growth that may drive up stock prices further. 

The ratio of insider buys- to- sells plummeted to 0.22, the lowest level since at least 1988. This means that for every one purchase of shares, there were over four sales. 

There are a lot of potential reasons for this insider selling, but whatever the case it indicates that corporate insiders are signaling that current stock valuations may be becoming a worry. As a result, there could be more volatility coming to the market that many expect. 

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Fed’s Uncertainty Mirrors Market Confusion 30 Jan 2025, 10:19 pm

As inflation has slowed down, the Federal Reserve has cut rates by 100 basis points since the peak in 2022. But what comes next is unclear, given the uncertainty around future economic conditions and inflation, making it difficult for the Fed to predict the next steps. 

There are political risks at play, inconsistencies around inflation data, and questions within the Fed around whether current interest rates are close to the “neutral” rate, which neither stimulates nor restricts economic growth, or not. 

 In response to this uncertainty, Fed Chair Jerome Powell has emphasized the need to move cautiously. But overall the Fed, just like the markets, is uncertain about the future. 

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U.S. Unemployment Benefits Claims Hit Three-Year High 20 Jan 2025, 9:03 pm

Continuing unemployment claims rose to 1.91 million for the week ending December 14, their highest level in over three years. 

This indicates that job searches are taking longer and people are remaining unemployed for longer than previously expected. 

However, initial unemployment claims are down compared to this time last year, due to both ineligibility and a lack of incentives to apply among those who are eligible. Still, the increase in continuing jobless claims, with laid-off workers facing longer stretches of unemployment, shows that the labor market is slowing.  

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Consumer Optimism Hits Record Highs, But Is It a Bearish Signal for Stocks? 15 Jan 2025, 10:04 pm

The Conference Board’s recent monthly household survey showed that expectations for the stock market are at a near 40-year high. However, the divergence between those expecting stocks to rise and those expecting a decline is the largest since the financial crisis, potentially signaling a contrarian indicator. 

What we do know from fund flows is that U.S. households are holding as much equity as ever, limiting upside potential, and many of the gains in the S&P 500 are coming from a limited number of companies, raising concerns about market breadth. 

The Fed’s decisions on interest rates and its messaging are crucial. Any signs of a pause or hawkish comments could add to the bearish sentiment. 

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S&P 500 Equal Weight ETF Approaches 2008 Levels as Market Concentration Continues 10 Jan 2025, 9:49 pm

Recent volatility in the stock market has the Invesco S&P 500 Equal Weight ETF relative to the S&P 500 ETF nearing a significant level that dates back to 2008. The approach to this level highlights a concerning trend: the concentration of market performance in just a few large-cap stocks. 

This suggests that a small number of large companies are driving the market’s gains, while the broader market is hitting a spread not seen since late 2008. 

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