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I have spoken recently on the great influence that the bond market and its yields have on equity markets and other risk assets. This research from Bank of America and Deutsche Bank confirms that volatility in rates has been driving the S&P500 over the past 2 years or so. It is interesting to note that the correlation is very close with the equal weighted index, while the regular S&P 500, driven by the magnificent 7, has somehow a life of its own. So in the two/three weeks that separate us from 3Q23 earnings, can we hope for lower bond volatility? Much will depend on the Fed’s statement on Wednesday night.

Chart from Bank of America Merrill Lynch and Deutsche Bank. H/t

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