Historic Correlations of Stocks, Bonds, and the Dollar

JoshWinter
JoshWinter

There are correlations between stocks and also commodities. Bonds and the dollar also historically have a strong correlation. Usually bonds and the dollar also move in the opposite direction of stocks and commodities. Over the the past few months we have seen a disconnect between bonds and the dollar. We may be seeing investors shift to bonds and away from stocks and the dollar.

Looking at history for clues, the times bonds and the dollar index maintain a high monthly opposite correlation has been the times we have seen market sell offs or corrections take place. When the dollar has lost ground and bonds have rallied, it has been a nice clue or warning. The last 4 out of 5 times in the past 25 years of a market correction of more than 30% has taken place.

Remember though, these are monthly charts and when dealing with larger time frames like monthly it can take quite a long time for stocks to begin to drop and sell off. But in the past it has held up 80% of the time. If 30 year bonds continue to rally and the dollar also finds support and starts to bounce then we may be prime for the next major market sell-off and correction.

Below are monthly charts of US stocks, bonds, and the dollar.

BONDS

DOLLAR

S&P 500 INDEX

Post edited by JoshWinter on
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