Watching a Strange Divergence
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From 2005 to 2010 the S&P 500 index, the Steel & Iron index and the yield on the 30-year bond have had a very high degree of correlation, rising and falling together.
For the past two years, the 500 index has made a massive divergence from the Steel and yield index, thus creating the widest spread in the past ten years.
Do these two, steel and yields, need to rally? Or does the 500 index need to fall? Or some of both?
If the 500 index needs to play a game of catch up, it has a long way to go. From a portfolio construction/risk management perspective, this spread could be sending a very important message!
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