Low Correlation Among Stocks Points To Potential Dangers

Stocks typically demonstrate strong correlations in both bull and bear market moves. These correlations tend to break down near the end of trends as fewer stocks drive the trend. Very low correlation measures are typically found at reversal points.

The chart below suggests that we may near suggest a reversal point in U.S. equities. The current measure has declined to levels that have preceded significant market retracements in previous years.

We add this consideration to the host of other factors we have commented on that compel us to suggest that extreme caution is warranted by equity investors.

Despite the significant risks present, we still see very attractive investment opportunities being produced in the months and years ahead. We discussed some of them in our January issue and will elaborate on our thoughts in the upcoming February edition.

If you found this post of interest, you’ll find the Global Investment Letter of value. To view free sample issues and to receive our weekly investment comment please visit: https://www.globalinvestmentletter.com/sample-issue/