Stocks and bonds have an important, but ever-changing, relationship. It isn’t as simple as being inversely correlated. Far from it. Looking at the SPY/TLT ratio provides, I believe, an interesting pattern in the form of a rounded top followed by a wedge.
Looking at the past decade or so, we can see how the rounded top preceded a hard, fast tumble, and that, in turn, was followed by the relentless climb of equities are bonds got pulverized in what is now the 5th year of a massive bear market in bonds.
My belief is that if and when the wedge drawn above cracks, the drop in equities, or the rise in bonds, or, mostly like, BOTH, will be epic. The wedge has been getting tighter, so the day of reckoning will not be long in coming.
