Futures and commodities broker Carley Garner stopped by the Action Alerts PLUS investing club to explain the strange phenomenon developing in the traditionally inverse relationship between stocks and bonds.
Related: Like it or not, a wave of Treasury short-term debt issuance is coming
FULL VIDEO TRANSCRIPT BELOW:
J.D. DURKIN: OK. Let me ask you about bond yields here. The 10 year of, course in, particular, been such a focus for the last several weeks and months. Let's talk about the relationship between stocks and bonds for our members.
Typically, bonds go down, stocks go up, or vice versa. Is this still a pattern to expect? Or are we kind of in this whole new world where maybe it's a little more difficult to try and figure out how some of these typical metrics play themselves out?
CARLEY GARNER: Right. Well, that's exactly what they taught us in finance 101 while we were in college, right? Stocks up, bonds down. And in this particular situation, we're seeing the exact opposite. I ran the stats over the last 90 days, and the US 10 year note Treasury future versus the S&P 500 future has settled in the same direction about 90%, 92% of the time over the last 90 days.
So not only are they not negatively correlated, but they're highly positively correlated. And what this tells me is a lot of that weakness that we saw in stocks over the last month or so was really just an interest rate story. Higher interest rates spooked investors and caused various reactions in the marketplace. But if interest rates have stabilized or bottomed, as I think they probably have-- if treasuries have stabilized or bottomed, interest rates topped, I think that we're in an entirely different environment. And I think both asset classes can climb higher as we go into the next couple of months, and maybe even quite a bit longer than that.
