When Stocks, Bonds and Oil Move TogetherCosts

Summary

Andrew Sheets discusses the unusual confluence of high correlation between stocks, bonds, and oil driven by the Iran conflict, while individual stock dispersion within the S&P 500 is at multi-decade extremes. He argues that bonds will regain diversification benefits if oil spikes further, and that active stock picking is favored in the current environment.

• Stocks and bonds are moving in unusually tight lockstep, correlated with oil due to Iran conflict.
• Within the S&P 500, individual stock dispersion is the highest in 20 years, driven by AI divergence and attention gaps.
• The advance-decline line for the S&P 500 is lower than in February/April 2025, indicating underlying weakness.
• Sheets expects bond diversification to work if oil spikes to $130-150/barrel, as yields would fall on growth concerns.
• Low cross-stock correlation creates a favorable environment for active stock selection.
• Michael Wilson's view that US equity performance will broaden out is referenced.