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The S&P and bonds do generally move in the same direction over the long run.
Lower interest rates = smaller debt payments = larger corporate profits =
higher stock prices. Additionally, lower yields on bonds make stocks look
more attractive as an investment.
Unfortunately, there are times when bond prices rise due to a flight to
quality. Investors are much more interested in safety than returns. Even
though this drives yields down, the stock market interprets this capital
movement as a bearish sign, because a certain percentage of the money going
into bonds is coming out of stocks, and investors are implying that they are
pessimistic about the economy in the near future.
Right now it appears that we are "exiting" this flight to quality stage.
This is why on certain days stocks will go up even when bonds have fallen
significantly, because investors are now saying they are more bullish on the
economy and are willing to start taking greater risks with their capital
again.
Unfortunately, nobody is going to wave a big green flag to signal that the
flight to quality scenario has completely ended...
Hope this helps.
Bruce
-----Original Message-----
From: Clint Chastain <flag@xxxxxxxxxxxx>
>Good Question!
>And one I wish I had the answer to as well.
>
>>Along the same lines, here's another puzzler: What's behind the present
>>divergence between the SPX and 30yr bonds??? Normally these two seem
>>fairly well correlated.
>>
>>Clint
>
>
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