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The S&P 500 and the equal-weight ETF have diverged significantly. Over the past year, the two-month moves in SPY and RSP have lined up less and less, and the correlation between them has dropped to about 0.47, the lowest reading in nearly two decades. A reading this low suggests the divergence has been building for a long time and is getting extreme.
From 2007 through 2020, the two indexes moved together almost perfectly, through the financial crisis and the COVID crash, and only since 2021 have they started to part ways. The dips in mid-2021, early 2023, and early 2025 never fell much past 0.6, and none of them was resolved by the equal-weight index catching up. Each time the gap closed because the cap-weighted index came back down to meet it.
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Meanwhile, the MOVE Index, a measure of bond market volatility, has surged to 104 from 78.5 on Tuesday. Someone forgot to tell the S&P 500 that it is supposed to decline when bond market implied volatility rises, especially with a move of this size.
The 10-year closed today at 5.21%, right at resistance. A break here sends the 10-year to 5.45%, and then perhaps 5.9% or even 6.5%.
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The 30-year has moved to 5.5%, while the 5Y5Y forward real yield rose to about 3%. Real rates continue to push higher because the market wants more yield, and we are living in a world that is more supportive of higher rates, as the last few years have taught us.
The HYG ETF fell again, and its gap with the SPY is widening. It is not just RSP that is doing this.
Unfortunately, when the S&P 500 finally does give way, it is unlikely to be a pleasant time.
-Mike
Glossary by ChatGPT
5Y5Y Forward Real Yield — The market-implied five-year real interest rate expected to prevail five years from today.
Cap-Weighted Index — An index in which companies with larger market capitalizations receive greater weight and therefore have more influence on performance.
Correlation — A statistical measure ranging from -1 to +1 that indicates the strength and direction of the relationship between two variables.
Equal-Weight Index — An index that assigns approximately the same weight to every constituent regardless of market capitalization.
HYG ETF — The iShares iBoxx $ High Yield Corporate Bond ETF, commonly used as a gauge of U.S. high-yield corporate credit.
Implied Volatility — The level of future price variability implied by market prices, typically derived from options or other volatility-sensitive instruments.
MOVE Index — A measure of implied volatility in the U.S. Treasury market based on pricing across Treasury options.
Real Yield — The yield on a fixed-income investment after accounting for expected inflation.
Resistance — A technical price or yield level where selling pressure has historically emerged or where further advances may become more difficult.
RSP — The Invesco S&P 500 Equal Weight ETF, which gives approximately equal weight to each S&P 500 constituent.
SPY — The SPDR S&P 500 ETF Trust, an exchange-traded fund designed to track the capitalization-weighted S&P 500 Index.
Disclosure
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.