LIVE MARKETS-Shifts in post-election US stock-bond correlations

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SHIFTS IN POST-ELECTION US STOCK-BOND CORRELATIONS

Investors are assessing the implications after Democrats seized control of both chambers of Congress on Tuesday, scoring sweeping wins in Republican strongholds.

Deutsche Bank US strategists see “big implications for politics over next couple years but not so much for policy, fiscal or otherwise.”

However, “there is a solid positive correlation between post-election moves in the S&P 500 and 10y yield,” they say.

“Historical experience suggests a 2% decline in equities over the next week would be associated with a n about 10bps drop in the 10-year yields,” they add.

The one-month rolling correlation hit 0.86 on Wednesday, around its most positive since April 2022. This suggests bond yields and stocks are more likely to move in lockstep with one another than the reverse.

US stock futures are up about 0.70% after the benchmark indexes .SPX, .IXIC rose between 0.36% and 0.8% on Tuesday, while US Treasury yields are down 2 bps after rising nearly 6 bps on Tuesday.

“The markets are less likely to be blown around by this result,” Mike Bell, head of market strategy at RBC BlueBay, says.

“The President can veto any Democrat policies and the Democrats don't have enough seats to impeach.”

(Stefano Rebaudo)

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