foxex: Correlated Markets

Chart Advisor | Focus on the Price

Thursday, November 07, 2019

1. Markets Press Higher while Gold and Bond Prices Show Correlation

2. FAANG Stocks Showing Mixed Results for the Year

3. Investors Reward Google's Market Position

Market Moves

Market participants responded with optimism to the latest news of U.S.-China trade talks as stock prices and interest rates closed higher today. Two asset classes showed an inverse response: gold and U.S. treasury-bond prices. While bond and gold prices, at times, have been known to show an inverse correlation with stocks, that hasn't necessarily meant these asset classes are positively correlated to each other.

The chart below shows that this correlation has actually been quite strong throughout most of 2019. A comparison between iShares 20+ Year Treasury Bond ETF (TLT) and State Street's SPDR Gold Trust (GLD) shows that, on a percentage return basis, gold and bonds have tracked each other quite well. The study below the prices on the chart shows the 30-day correlation coefficient between the two data series. This represents the fact that the indexes have a better than 50% correlation for much of the year. This is likely driven by the market's uncertainty over Fed policy throughout the year.

FAANG Stocks Showing Mixed Results for the Year

The so-called FAANG stocks, Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX), and Google (GOOG) have dominated so much of investors attention over the past five years that the stocks collectively outpaced the markets for much of that time. This year it seems that things are a bit different. While FB and AAPL shares have outpaced Invesco's Nasdaq 100 ETF (QQQ), the chart below shows that GOOG, AMZN and NFLX shares have lagged behind it--all for different reasons as it happens. This implies that investors may be showing yet more interest in branching out to find new sources of investment growth.

3 Charts That Suggest Financials Are Headed Higher

Expedia Stock in Freefall After Weak Quarter

Investors Reward Google's Market Position

The price chart for Google shares (GOOG) shows that while it has nearly kept pace with the NASDAQ 100, it is potentially doing so at the expense of a few other companies. The latest group of companies to feel a pinch is the group of companies that provide travel information online, but this phenomenon is not new. As the chart below shows, shares of Yelp (YELP) fell dramatically as viewers shifted usage patterns driven in part by changes to Google's review and reference systems. Now it seems that algorithmic changes to Google Travel were called out by executives at Expedia (EXPE) and Trip Advisor (TRIP). While investors like to invest in companies that do well, it becomes an interesting question to consider whether Google can maintain such practices for long without fear of competition or censure.

The Bottom Line

Stocks closed higher as both bond and gold prices dropped noticeably lower. The correlation between bond and gold prices may be useful for sophisticated investors to consider, but it likely shows that investors are thinking about both asset classes in the same way: as a hedge against a strongly surging stock market. FAANG stocks no longer represent a collective dominance in the market and Google yet again demonstrates that it has a unique position of strength in the market.