A quick walk down memory lane inspired today’s Chart of the Day. In 2020, after an unprecedented amount of asset purchases by the Fed and near-zero interest rates, easy money pushed credit spreads to record lows and the U.S. stock market to record highs. Anything that threatened this dynamic — say, positive economic data suggesting the economy may not need as much support — spooked the stock market. Investors were worried it signaled an end to central bank assistance and therefore, their market gains. Below is the 60-day correlation between S&P 500 e-mini futures and the Citi Economic Surprise Index, which compares actual data releases to market expectations. Because of that dependence on the Fed, this chart has been largely negative since the pandemic. But that’s changed over the last couple of months — turning positive. In other words, now good news for the economy is good for the market (as it should be). Why the change? Inflation.
You can read more about this here on the web. Tell me what you think! Will this continue? And as always thank you for your interest. Feedback is always welcome.