Morning Review - 080310

8/9/2019 Morning Review - 080310

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Nicholas Colas (Chief Market Strategist): 212 448 6095 or [email protected] Clark: 212 448 6085 or [email protected]

Beth Reed: 212 448 6096 or [email protected]

I would only point out that there is a real price to pay for such high correlations. This isnt science fiction any more, it is science fact.The most dramatic development of the last 12 months is that retail investors have pulled cash out of U.S. equity mutual funds even though stocks have donewell. Some has gone into stock ETFs, yes. Far more, however, has gone into bonds. Investors, even if they have not learned it formally, understand that diversificationmeans lower correlations. As long as stocks, bonds, precious metals, and other assets all move in lock step, retail investors will most likely favor less risky assets.

Name Symbol Current 1 Month Ago 2 Months Ago 3 Mont hs Ago Change in absolute cor relation* Change in absolute correlation* Change in absolute corr elation*(07/30/10) (07/01/10) (06/10/10) (04/30/10) from 1 mo ago from 1 mo ago to 2 mos ago from 2 mos ago to 3 mos ago

Energy XLE 94.56% 95.17% 93.57% 81.60% 0.61 11.97 8.76Health XLV 86.13% 93.66% 94.43% 66.50% 7.53 27.93 11.10Industrials XLI 95.73% 97.74% 97.98% 92.93% 2.01 5.05 3.57Utilities XLU 83.28% 88.31% 90.07% 65.98% 5.03 24.09 4.44Consumer Staples XLP 83.14% 85.56% 92.70% 81.06% 2.42 11.64 1.91Telecomm IYZ 90.93% 93.80% 94.12% 84.73% 2.87 9.39 19.49Technology XLK 95.99% 95.84% 96.58% 91.16% 0.15 5.42 1.62

Consumer Discretionary XLY 95.25% 97.08% 97.35% 85.55% 1.83 11.80 3.65Financials XLF 94.16% 95.02% 97.16% 91.75% 0.86 5.41 13.54Materials XLB 89.96% 94.79% 95.15% 85.89% 4.83 9.26 11.54

Gold GLD 20.11% -16.47% -26.48% 8.57% 36.58 35.05 17.87Silver SLV 43.19% 37.63% 25.58% 48.33% 5.56 22.75 1.43

EAFE Index EFA 92.15% 95.41% 94.43% 87.90% 3.26 6.53 10.99Emerging Markets EEM 88.40% 95.55% 93.98% 88.57% 7.15 5.41 4.44

Australian Dollar FXA 86.78% 88.60% 82.97% 67.43% 1.82 15.54 2.82Euro FXE 30.84% 45.60% 40.79% 41.32% 14.76 0.53 10.80

Japanese Yen FXY -50.33% -73.54% -72.75% -35.61% 23.21 37.14 14.09

High Yield Corporate Bond HYG 86.12% 80.59% 77.55% 53.34% 5.53 24.21 7.68Investment Grade Bond LQD -13.35% -21.74% 14.30% -20.58% 8.39 34.88 34.54

*Red indicates increasing correlation; green indicates decreasing correlation

Source: IVolatility.com

Historical 30-Days Correlation Against S&P 500


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60%

65%

70%

75%

80%

85%

90%

95%

100%

Sector ETFs: Historical 30-Days C orrelation Against the S&P 500

Energy Health Industrials Utilities Cons Stpls

Telecom Technology Cons Disc Financials Materials

-30%

-10%

10%

30%

50%

70%

90%

GLD and SLV: Historical 30-Days Cor relation Against the S&P 500

GLD SLV

-80%

-60%

-40%

-20%0%

20%

40%

60%

80%

Currencies: Historical 30-Days Corr elation Against the S&P 5 00

Australian Dollar Euro Yen

-30%

-10%

10%

30%

50%

70%

90%

Bonds: Historical 30-Day s Corre lation Against the S&P 5 00

High Yield Investment Grade


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900950

1000

1050

1100

1150

1200

60%65%

70%

75%

80%

85%

90%

95%

100%

Sector ETFs: High, Low & Avgerage M onthly Historical 30-DayCorrelations Against the S&P 5 00

High Average Low S&P 500

1517

19212325

27

29313335

70%

75%

80%85%

90%

95%

100%

VIX vs . Average 30-Day Historical Correlation of Sector ETFs tothe S&P 500

Avg Correlation VIX

Correlation = 0.61


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FIXED INCOME

Source: Bloomberg

Todays Important Economic Indicators/Events: Motor Vehicle Sales: 8.8 M annual rate Personal Income: 0.1% Consumer Spending: 0.1% Core PCE Price Index: 0.1% Factory Orders: -0.5%

Pending Home Sales Index

Source: Bloomberg

Treasuries fell for the first time in 4 days after unexpected strength in manufacturing and construction spending lifted equities. Two-year note yields rosefrom a record low, while the yield on 10-year securities climbed 5 basis points to 2.96 percent. Federal Reserve Chairman Ben Bernanke said in a speechto state legislators that rising wages will likely boost consumer spending over the next few quarters, even though labor market weakness may continueto weigh on consumer confidence.


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Morning Review - 080310

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