Gone are the days when stocks move in lockstep with the index. This week’s chart shows that stocks in the S&P 500 are increasingly going their own way.
Specifically, the chart shows the median 63-day correlation of S&P 500 stocks to the S&P 500 index. Simply put, it measures how much the average stock moves in relation to the market. A correlation of 1 means the stock moves exactly like the index, while a correlation of 0 means it moves completely independently.
As you can see, stock correlations are now at record low levels, with data going back to 2002.
What does this mean? Well, usually, correlations tend to jump during periods of market stress. That’s because fear makes investors sell stocks indiscriminately, pushing correlations to 1.
But now, low correlations mean stocks are driven more by things like earnings, company performance, and other specific factors rather than broad market fear. Historically, this has been a pretty decent time to own stocks.
This is intended for informational purposes only and should not be used as the primary basis for an investment decision. Consult an advisor for your personal situation.
Indices mentioned are unmanaged, do not incur fees, and cannot be invested into directly.
Past performance does not guarantee future results.
The S&P 500 Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S.