Ties are loosening between equity markets as well. Correlation between the S&P 500 and the Shanghai Composite Index reached at least a seven-year high on Jan. 25 of 0.95 -- now it’s 0.5. In a note to clients Wednesday, Christopher Low of FTN Financial highlighted a disconnect in global stock indexes, contrasting recent gains in China and Europe with losses in Tokyo and Hong Kong.
The Shanghai Composite climbed 1.1 percent on Wednesday, while the Euro Stoxx 50 surged 2.7 percent. Japan’s Topix index and Hong Kong’s Hang Seng Index slid more than 1 percent.
“The fact major indices have uncoupled is a good sign, suggesting reason is replacing panic in at least some markets,” Low, chief economist at FTN Financial, wrote.
With U.S. stocks splitting off from their global counterparts, investors are focusing more on domestic economic data that’s been improving recently, according to Paulsen of Wells Capital. Citigroup Inc.’s U.S. Economic Surprise Index rose six straight days through Monday, its longest streak of gains since October. The measure has climbed 15 percent since reaching a eight-month low on Feb. 4.
Data on Friday showed retail sales increased for a third month in January. And while the University of Michigan report’s preliminary sentiment index fell to the lowest since November, the share of households reporting that their financial situation had improved rose to a six-month high of 45 percent. Households remain upbeat about their finances because they expect inflation to remain muted, the data show. The S&P 500 has rallied 5.3 percent in three trading sessions since Thursday.
“The big break was really Friday,” said Anna Rathbun, director of research for CBIZ Inc.’s retirement plan services unit in Cleveland, Ohio. “U.S. markets have not been trading on fundamentals, they’ve been trading on things like oil and Chinese markets. Fear has played out in the form of high correlations in markets, and finally they’re breaking apart.”