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DesmondMilesDant OP t1_j9dmrq1 wrote

Reply to comment by _Kenway in Wall Street Newsletter S02E07 : Why is there such a disconnect b/w Stock and Bond market? by DesmondMilesDant

Dude bond prices are +ve correlated with stock price. That means when bond go down i.e. bond yields go up then stock market should drop as well. This is what it means to be +ve correlated in high inflation which it clearly isn't rn.

And yes i agree gold was overbought af but so is stock man especially on the tech side.

As your friend Steve said " Paradigm shift takes time. People don't easily give up on their principles of investing " Hence i believe that one day market will come up to their senses that rates are actually at 5% (could go 6% if sticky inflation theory is correct) not 0%. That means something for equities valuations.

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_Kenway t1_j9dodhn wrote

1d correlation coefficient between SPY and 10Y was 0.7 just 3 weeks ago

now it's around -0.4, which makes sense bc the correlation shouldn't be that high at medium and long term

weekly chart is still positive around 0.6

the correlation has its mean reversion as well so it tends to correct

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DesmondMilesDant OP t1_j9e26vi wrote

>As your friend Steve said " Paradigm shift takes time. People don't easily give up on their principles of investing " Hence i believe that one day market will come up to their senses that rates are actually at 5% (could go 6% if sticky inflation theory is correct) not 0%. That means something for equities valuations.

Using my indicator on myself Dr Burry. 😂

I don't really use it on daily tf. I just use it on weekly time frame and waiting for when US10 and SPX to go from +0.66 to -0.5 or below. That will mean US10 i.e. bond price and SPX i.e stock price will have -ve correlation somewhere down the line. So if inflation falls off the cliff below 4% in back half of 2023 bond prices will go up i.e. yields down and stock prices will go down.

But yah i think you're right. This was the reason on daily tf why bond prices fell but stocks didn't coz it became -ve correlated by going from +0.5 or higher to -0.4. Thanks for giving me a lesson man. ✌

Note : It will go up on +ve correlation on daily time frame soon.😜

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