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Equities, Bonds And Gold Fall. Time To Panic?

|Includes: SPDR Gold Trust ETF (GLD), SPY, TLT


SPY -1.4%, TLT -2.2% and GLD -2.7% - Reason to panic?

Is it common for stocks and bonds to move in the same direction?

Short-term co-movement does not mean the fundamental relationship between stocks and bonds is changing.

This past Friday (3/6/2015) was a difficult day for most portfolios that are long any major asset excluding the dollar index and volatility.

SPY was down 1.4%, TLT fell 2.2%, GLD also down 2.7%.

Is this common?


As you can see this is an outlier. It has only happened a few times in the past 12 years.

Let's ask another question. Is it common that both SPY and TLT fall the same day?


As you can see, it is not uncommon for the SPY and TLT to decline on the same day.

Let's say we panic, we think stock and bonds will fall further and short both on the next open. We cover the next day close.

Top pane: Price of 20 year Treasury ETF: TLT. Lower pane: Backtest results starting with 100k. Source:

As you can see that type of strategy looses money consistently.

Now let's do the opposite. We go against our instinct and actually buy both SPY and TLT at the next day open. We sell the next day at the close. We see that over time this is a better strategy.

Top pane: Price of 20 year Treasury ETF: TLT. Lower pane: Backtest results starting with 100k. Source:

So what does this mean?

Co-movement between equities and bonds are not uncommon. It does not mean that the basic correlation between the two assets has fundamentally changed. History shows that thinking something is wrong and selling is counter-productive.

The idea is to have a long term plan and to follow it while paying less attention to short term movements, news, hype and emotions. Is it possible that an investment strategy such as 60/40 bond/stock split or our own UIS strategy stops working? It is conceivable but that would mean the fundamentals of the stock & bond market have radically changed. Coming to that conclusion needs to be evaluated on a different basis over a longer period of time, and there is no indication of that yet.

Disclosure: The author is long SPY, TLT.