Divergence between US stocks and yields spells correction ahead - CIBC

Katherine Judge and Avery Shenfeld, analysts at CIBC point out that the correlation between yields and stock deteriorated, as investors get ready for “disappointment”. 

Key Quotes: 

“The correlation between stock returns and bond yields in the US has deteriorated this year, with the S&P 500 reaching a fresh high this week while US 10-year Treasury yields have fallen by just under 20bps. However, that reflects starkly dovish investor sentiment towards the Federal Reserve. The market is pricing in just under two full interest rate cuts by the end of 2020.”

“Investors are therefore setting themselves up for disappointment, with next week’s FOMC announcement unlikely to provide any sign of an imminent rate cut, a negative for US stocks.”