Tracking Asset Class Correlations

Good morning. Here's what you need to know.

One of the biggest themes in global markets is the search for yield. Government bond yields across the developed world are at or near record lows as central banks continue full-on monetary easing. One major side effect of depressed yields on government bonds has been a flood of money into riskier assets like junk bonds – or Rwandan sovereign debt – from investors looking for interest income.

Hickey and Walters (Bespoke) submit: The charts below show the relative strength of the ten S&P 500 sectors versus the S&P 500 over the last year. When the line is rising it indicates that the sector is outperforming the S&P 500, while a falling line indicates underperformance.

Michael Johnston submits:The past few years have shown many investors the importance of diversification and its role in proper portfolio construction. More recently, market turmoil in Europe and the “flash crash” in the markets last Thursday rocked virtually every asset class, sending markets plunging around the world. It is somewhat remarkable that events in Greece, a small country with a GDP roughly the size of Massachusetts, have had a huge impact not only on the rest of Europe but on world markets as well.

Hickey and Walters (Bespoke) submit: Below is an updated look at our trading range charts for the S&P 500 and its ten sectors. For each chart, the blue shading represents the sector's "normal" trading range, which is between one standard deviation above and below the 50-day moving average (white line).

The S&P 500 ended the week at yet another all-time record high. Some have tried to compare the current peak to the stock market tops we've seen in 2000 and 2007.

Hickey and Walters (Bespoke) submit: The charts below highlight the rolling six month correlations for the S&P 500 relative to oil, US Treasuries, and gold.

Randy Durig submits:GE Capital yielding 6.7%, maturing on 09/01/2014 with Australian Dollar