... or what caught my attention.
In recent days, we have been dealing not only with the great technology melt-up of 2024, but also with the divergence of US shares from other assets, such as the EURUSD, 10Y yield, or real 10Y yield. Additionally, we can add the USDJPY, USDCNY, or from another set of "indicators" even the Fed's balance sheet.
Figure 1 shows 10Y yield compared to the S&P500. We have had a strong decoupling for a few days, but this is not the first time during the market rebound from the bottom of October 2022. We had the first "big" decoupling from May 11, 2023 to July 31, 2023, when the S&P500 increased by 11.1% - and 10Y yields increased by 58bps. Yet yields continued to rise by another 102bps... to the peak on October 19, 2023 - then the S&P500 could no longer defy gravity and fell by 10.3%.
Figure 2 shows the EURUSD rate against the S&P500. Here, decoupling is less visible, but it has also occurred in recent days.
Figure 3 shows the relationship between real rates and the Nasdaq 100. Here the situation is similar to that of nominal yields. We had the first "large" decoupling from April to July 2023.
Figure 4 shows the relationship between USD/CNY and the S&P500. Figure 5 between USD/JPY and S&P500. In both cases the relationships with the S&P500 are more nuanced.
The relationship between the S&P500 and the change in the Fed's balance sheet has completely broken down (the balance sheet is falling as a result of QT, but the shares are still rising). The same is true for broader measures of the Fed's liquidity (including other liquidity facilities - not just the change in FED’s balance sheet itself).
In Q4 2018 (previous QT), shares could not withstand the FED's rhetoric about continuing QT and the S&P500 saw a 20% correction.
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