Zero Hedge: S&P 500 No Longer Representative of Index’s Average Stock
Zero Hedge reports:
… the 3-month realised correlation of the S&P 500 and its own equal weight version has fallen to 0.598, the lowest in its 15-year series and more than 4 standard deviations below the 0.93 average. In other words, the index is no longer representative of the average stock within the index. Back in August, Goldman had noted the most negative correlation between its broad AI basket and the S&P excluding AI. The 3-month realised correlation of the S&P to oil is -0.58 vs a 15-year average of +0.23, while the correlation to the 10-year yield is -0.56 vs a 15-year average of +0.24. Goldman says the index now behaves like “a self-contained asset class, driven less by traditional macro transmission and more by (a) narrow set of forces dominating index returns (AI vs non-AI), wreaking maximum frustration for the aggressive investor community”. In my mind, the low and negative correlations all indicate that money is being sucked out of every other asset class, and every other sector, to finance AI. Unless AI can function without these other inputs, it tells us that it is a bubble, and that it will eventually run out of other people’s money – (other sectors or asset classes money) with which to fund itself.
Positions: None.
