The 2-week correlation between SPY and TLT hasn’t been this high since the end of January 2014, after which the SPY fell nearly 6% in two weeks. Stocks and longer dated US Treasury futures both closed higher today, with the S&P 500 gaining 6.25 handles and the 30-year up 9/32’s.
Normally stocks and bonds move in opposite directions; lately they have been dancing to the same tune. Recently, short term peaks in the stock market have been associated with periods of positive correlation between stocks and bonds:
The market is currently betting on stimulus from the ECB tomorrow. Mario Draghi has been slow to engage in all-out QE like other central banks. Given the market’s bullish expectations, anything short of QE will likely be a disappointment and cause heightened volatility.
The ECB interest rate decision is at 7:45am EST tomorrow, but expect the real fireworks during the press conference afterwards at 8:30am. Markets will be reading Draghi’s introductory statement for clues on where the ECB will steer monetary policy going forward. As always, the Q&A session is where Draghi can drop the biggest bombshells, as the impromptu nature of the discussion allows for more candid responses from the central bankers.