Correlation Breakdown

On Friday, during a face-ripping rally, the S&P 500 rallied nearly 2% and erased a week of losses.

The week’s trading revealed that a rotation out of high-flying tech into defensive names is well underway. The Dow, which includes broader, non-tech-related stocks, is starting the week above 50,000 for the first time in its history.

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The correlation between S&P 500 sectors indicates capital flight from tech into other sectors. (Source: Sentiment Trader)

Prior breakdowns in S&P 500 correlation have signaled market weakness. Most notably in the tech wreck of 2000-01.

“We’ve got our eyes peeled for further signs of a tech selloff,” notes our portfolio director, Andrew Packer. “Take some profits off the table, and expect more big swings.”

If markets sell off in earnest, the correlation between sectors will get back into whack… as everything gets sold off in unison.

~ Addison

P.S. On Friday, Andrew, Mark Jeftovic, and I dug deep into the bitcoin and crypto selloff on Grey Swan Live! We unpacked a set of signals in crypto and Dollar 2.0 digital assets that rarely appear together — and almost never by accident.

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As a proxy for the space, bitcoin is down close to 50% after another pullback over the weekend. Now is a good time to know what the sell-off means for gold, silver and the companies we still recommend in our Dollar 2.0 thesis. Check out the replay in the members section of the Grey Swan website.

On Friday, during a face-ripping rally, the S&P 500 rallied nearly 2% and erased a week of losses.

Turn Your Images On

The correlation between S&P 500 sectors indicates capital flight from tech into other sectors. (Source: Sentiment Trader)

Prior breakdowns in S&P 500 correlation have signaled market weakness. Most notably in the tech wreck of 2000-01.

“We’ve got our eyes peeled for further signs of a tech selloff,” notes our portfolio director, Andrew Packer. “Take some profits off the table, and expect more big swings.”

If markets sell off in earnest, the correlation between sectors will get back into whack… as everything gets sold off in unison.

~ Addison

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Debts and deficits will eventually cause a crisis. Treasury Secretary Scott Bessent’s effort to help bail out the Japanese Yen this week is entirely motivated by self-preservation. The contagion signal flashing in Japanese bonds since late ‘25 is infecting the BOJ, which may be forced to sell U.S. Treasurys to stabilize its own currency.

The copper price is no doubt benefiting from inflation driven by money printing. But the doc don’t lie. Copper’s new all-time highs, while gold and silver still languish, are a sign the AI growth story is also that of the global economy itself.

Many miners were profitable with gold around $2,000 and silver near $50. At sustained prices closer to $4,000 gold and $60 silver, the arithmetic changes dramatically.

The stock market is getting an unexpected boost to kick off August, bucking the historically weak summer session for the U.S. stock market.

What’s happening? The Bank of Japan and the U.S. Treasury are making a coordinated effort to support Japanese yen; a move last attempted nearly 30 years in the height of the Asian Financial contagion (1998).

Many miners were profitable with gold around $2,000 and silver near $50. At sustained prices closer to $4,000 gold and $60 silver, the arithmetic changes dramatically.

The stock market is getting an unexpected boost to kick off August, bucking the historically weak summer session for the U.S. stock market.