Investor CAFÉ

Is the Stock Market about to Roll Over?

Stock analyst Eric Parnell recently wrote a column in Seeking Alpha, “Another Troubling Sign for Stocks.” He wrote, “U.S. stocks are increasingly traveling this upside path alone, as many other major global markets and asset classes that are highly correlated with U.S. stocks have either already ground to a halt if not turned lower beginning as long as two years ago. The longer this disconnect lasts and the more stocks move higher by themselves, the greater the probability that U.S. stocks will finally succumb and fall in line with the rest of the crowd. And one of the latest categories to fall off the upside path is high yield bonds, which is particularly troubling since it is… among the categories most closely related to U.S. stocks.”

Parnell produces this graph below to demonstrate the sudden disparity between stock and bond prices, the first since 2009 (as far back as the graph goes):

This is typical of naive analysts (Money magazine types) who constantly look for correlations, and therefore causation. Granted, the best time to be in stocks is when interest rates are low and the economy is in recovery (2009-2013).

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