The current decline of the S&P500 from the peak is already 4.42%. Last time, in October 2023 (-10.28% in the case of the S&P500, see Figure 1) the end of the correction happened only when US Treasury bond yields stopped increasing.
Just yesterday we had a reversal of the trend in yields and a decline of a good 10 bps in 10Y, and today another 2 bps down. While this move is more about short-covering and dip-buying (solid 20Y auction) – some good macro data on inflation will be needed to reverse the trend on a more permanent basis (a reading below market expectations could be enough).
Figure 1 and 2 show how the main stock indices behaved during the previous risk-off episode (August-October 2023). We define the risk-off period as a correction on the S&P500.
Figure 3 shows the behavior of gold and bitcoin. Figure 4 shows the main currency pairs and the dollar index.
Figure 5 shows changes in the yields of 2- and 10-year US treasury bonds and TLT (iShares 20+ US Treasury Bonds ETF).
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