JPMorgan Warns of a US Market Correlation
JPMorgan Chase & Co has warned clients of a shift in a correlation between U.S. credit spreads and equities. They’ve warned that there will be a divergence between emerging-market currencies and developed-market currencies against the dollar. This can be an early sign of a significant market turning point.
Consequently, investors in the U.S. have become more cautious with stocks and bonds that have rallied this year. This has been a combination that’s bothered investors, causing for a significant drop in the United States. This yielded only the smallest decline in the dollar versus other global currencies.
JPMorgan went on with their April 7th warning, stating that credit spread could widen throughout the year as stocks continue to gain momentum. Investors shouldn’t be worried though, as widened credit spreads are driven by deal activity. The Federal Reserve can tolerate them if interest rate hikes become prolonged. However, it can become an issue if the widening spreads have weak corporate earnings.
The S&P 500 Index has increased 15% on its year-to-date while the Bloomberg Barclays U.S. Corroborate HY Index has been yielded, falling over 1.5%. This is amid a series of comebacks from a fall in equities during the financial end of 2018. This is a bad sign that inflation is now heating up and that the Chinese economy is doing better than the American economy.
Strategists have now been keeping a close eye on the dollar’s performance against significant peers like China and Russia. JPMorgan revealed that only 10% of the time is the dollar dropping against most global currencies. That 90% of American Dollar outperforms emerging currencies or competitive markets.
Strategists have noted that influences outside of the United States need to be in play to adjust this anomaly. The possible de-correlation can be corrected if U.S. Sanctions on outside currencies change.