ETF correlations spiked during the financial crisis as investors stampeded from riskier assets and into safe havens such as the dollar and U.S. Treasury bonds. Correlations remained elevated as the market bottomed in 2009 and rallied in 2010, Colas said.
When sectors started to take their own separate paths earlier this year “it gave the feeling of a properly functioning capital market rather than one juiced or punished exclusively by macro concerns,” the strategist wrote.
Now, the market is being buffeted by the Eurozone debt crisis, the U.S. debt ceiling and speculation on the Federal Reserve’s next possible moves. [Gold ETFs Near Record on Debt Woes]
“That’s not to say this will make for a tougher market, as late June proves,” Colas said. “It does, however, make the decision about asset allocation more important than sector or stock selection.”
SPDR S&P 500 ETF (NYSEArca: SPY)
