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A Rare Market Occurrence


Welcome to fall!   Well, at least unofficially since Labor Day is over.  Since we are 2/3 of the way done with the year (and yes, I saw some Christmas decorations in the store over the weekend) I thought I would touch on some market-related items as it has been a rather unique year.

What do I mean by it being a unique year?  Well, you have some asset classes that do not normally move in the same direction all moving in the same up direction this year.  Specifically, the US stock market, long-term bonds and gold.  Let’s take a look at some specifics.

  • S&P500 is up a bit under 17%
  • Gold is up over 19%
  • Long Term US Treasuries (20-year) are up nearly 22%

One quick note, Gold and the Treasuries have made most of their moves in the last few months and this is what caught my attention a few weeks back.

Again, this is odd as the correlation of these items is not so positive.  Basically, they are not all supposed to move in the same direction at the same time.  Usually when one is going up another should be going down.

The timing of this was perfect as Ben Carlson put out an article on this same topic the end of last week (Can I consider myself a mind as great as his? Probably not.).   Fortunately, he dove a bit deeper into the history of this occurrence.

The last time this happened was 1986.  My kids may think I’m 1,000 years old, however, I was just starting high school during its last occurrence so I don’t recall it.  1986 was the only time since 1930 that all three of these positions were up so much in the same year.  

Unfortunately, there isn’t same glaring commonality between 1986 and 2019 and why these returns are all moving up so much.  Ben noted one common item was interest rates were being cut in both years.  

What is more interesting is there has been one year since 1930 where they were all down in the same year.   That year happened to be 2018.

Sadly, I don’t know if any of this means anything.  I’m hoping it is something as simple as a rare trend that proves diversification matters and not that there is something broken in the market.  At a minimum, and this assumes we end the year holding this trend, it means this is an occurrence that has not happened since I was given the nickname “Mushroom head” in high school.  The lesson I learned back then was not to get a new hairstyle right before yearbook photos.  Your lesson may be to make sure your advisor has you properly diversified.