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A lot has been said about the drop in correlations between stocks and sectors since the election.  Below is a chart that really highlights this.

We calculated the correlation between the daily price changes (%) of all eleven sectors during the current bull market and then just since the election on November 8th.  For example, we take the daily percentage change for the S&P 500 Technology sector and calculate the correlation between that daily percentage change and the daily percentage change of the Consumer Discretionary sector, the Consumer Staples sector, and so on and so forth.  We then calculated the average of the correlations between Tech and the other ten sectors to come up with a reading of 0.73 throughout the current bull market.  Remember, a reading of 1 is perfectly correlated, a reading of 0 means price movements are completely independent of each other, and a reading of -1 means they’re completely mirroring each other.  For Tech, the average correlation of 0.73 with the other ten sectors during the current bull market means they’ve mostly moved inline with each other.

Since the election, however, Tech’s average correlation with other sectors has been just 0.25.  And you’ll notice a similar pattern across the board.  Sector price change correlations since the election have been extremely low.  This definitely hasn’t been a “rising tide lifts all boats” type of market rally.


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