SPY:TLT update April 10

The SPY:TLT (stocks vs bonds so to say) ratio tells us about risk appetite in the market. The higher the ratio the higher SPY and the lower TLT: high risk appetite. Everybody wants stocks and not bonds. A low ratio is simple vice versa: low risk appetite. Everybody wants bonds and not stocks.

Over the past 10 years we see the following relationship. (Ratio is based on weekly closing prices) A very high ratio mid-2007 when everybody wanted stocks. Then during the 2008-2009 market crash the ratio dropped: everybody dumped stocks for (safer) bonds. Since the the ratio steadily climbed, albeit with ups and downs until late 2013. Since then it steadily has been declining, wit a double peak mid-2015. Cont’d below.


After the “double peak”, the ratio once again started to decline, and bottomed with a lower low February 2016; not surprisingly. It has since rallied, but in fact already peaked early March (1.59) and has since been in decline ending this week at (1.55); a 2.17% drop this week. Hence, appetite for  bonds is increasing, while for stocks its decreasing. In fact while the S&P500 is 4-5% below it’s ATH. the SPY:TLT ratio is >15% below it’s May 2015 high. Hence, risk appetite now is disproportionately less then it was at the S&P500s ATH… In essence, this is a bearish divergence.