Actual Sector Correlation Reaches New High

One-month correlation among the nine large stock market sectors reached the highest level since the data became available in 1997. The high correlation is similar to what we saw October 2008 and March 2009 when everything went down together. Only this time, everything has been going up together. The key word in those two sentences is “together”.

Click image to enlarge

As you can see from this 19-month chart, that level of connectedness usually doesn’t last. Also, you can see that this is nearly the exact opposite situation from last year. Last summer you had some industry groups cratering (energy and materials) while others moved higher (consumer staples and health care).

Note that this is actual correlation, as opposed to implied correlation, which is completely different. I plan on covering the latter quite extensively in the days ahead.

Comments

[Steven Hansen:]

Is together good?

Aug 06 03:28 AM

[Don Fishback:]

For certain types of option trades, it's very good. For others, not so much. It's really more of an indication of market participation and dispersion.

Aug 06 08:31 AM

[Old Trader:]

Steven,

My first impulse is to say "no", because its not "normal". Typically, sectors move to their own "rhythms", so to speak. As the article points out, the most recent examples were Oct. 08 and Mar. 09.

I think it could be argued that this would be an argument against the stance that the market is "all better, now". Fwiw...


On Aug 06 03:28 AM Steven Hansen wrote:

> Is together good?

Aug 06 09:03 PM

[Analyste de...:]

It's not reflation, "lifting all paper boats" ? We're floating in a sea of funny money now - that's why buying bullion (vs. GLD, SLV) makes sense at this time.

For the smaller investor, shifting speculative paper gains (esp commodity ETFs) into hard/real assets, gradually & systematically, makes sense to me.

Aug 26 03:52 PM