written by reader Correlation of the 5-year treasuries (FVX) and NASDAQ Composite (COMPX)

By arnold55, February 27, 2021

There has been a lot of talk this week about how market conditions are changing and that the approach over the last year (more or less) is changing. Apparently, the “there is no alternative) to investment in stocks” no longer seems to hold water today, in that bonds now are providing an actual alternative. I’m a relatively new investor (about to retire and so can start focusing on my portfolio), so I don’t know how in-depth I am getting when I say that I find the recent correlation between the 5-year treasury yield and the NASDAQ Composite to basically be tracking each other inversely – at least, yesterday, Friday, February 26, 2021. Pulling up my brokerage chart this morning I see that the NASDAQ started dropping at market open while the 5 year bond was increasing in yield from 9:30 am to 10:30 am. At 10:30, bonds reversed and so did NASDAQ. Incredible how this tracking goes. Looks like the algos in the markets are tuned in totally to the 5-year. Same thing happened from 11:10 eastern to 11:30 eastern. Peak yield for the date was at 11:30 and then it reversed lower throughout the day; however, stocks at 11:30 ended the day at 4:00 pm at the same level. Does this mean that the algos are keyed on the sell-side only when rates increase, but are not hair-triggered to buy when rates reverse? I’m a buy and hold guy, but I’m realizing that reading into some of this might give me some advantage.

Takeaways for me:
1. Treasury rates really matter right now
2. Lot more correlation / reaction (cause and negative effect) for NASDAQ when yields increase then when the rates decrease, i.e., a delayed and not as equal reaction when the buy side condition occurs.
3. The jawboning from the talking heads about the rates and their importance is something that I’m not discounting.

Like many of you this week, I took a hit of 18 percent. My small caps were creamed….

Anybody have any thoughts? Am I saying something basic, something prophetic, something in-between? Channeling Dick Cheney, I know what I know and I know what I don’t know. I just don’t know what I don’t know.

I welcome your thoughts … before Monday, I hope!

And thanks, Travis, I lurked in your forum for a couple of months. I appreciate your work.

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