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Stock-bond correlation falling, bullish for stocks?

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Bloomberg out with a piece on the falling correlation between bonds and stocks.

Pioneer Investments, Security Global Investors and Citigroup Inc. say the broken connection is bullish as the greatest number of S&P 500 companies in a decade post earnings growth. During the bull market from 2002 to 2007 when the S&P 500’s price and profits doubled, the correlation averaged 0.15, data compiled by Bloomberg show.

The article believes that this change derives from a change in investor behavior — no longer are investors buying and selling based on macroeconomic factors but instead are returning to invest based upon profits and prospects.

Could be — the truth though — like everything in life — is probably somewhere in the middle.  The story of a change in correlation here is probably more about the dislodging of the bond market than about a return to proper pricing of equities.

Source: Greed beats fear with stock-bond correlation falling (Bloomberg)

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