War has pushed global markets into the danger zone

Low correlations have been one of the dominant features of this bull market.

That is, the S&P 500’s heavyweights have tended to march to the beat of their own drummers, despite seemingly having a common critical success factor (whether their AI spending binges will pay off).

Low correlations help tamp down volatility at the index level — when one stock is down, another’s up. When volatility is suppressed, there are fewer scary daily drawdowns that inspire panic and send the index screaming even lower.

Tuesday’s rout was the most meaningful challenge to the low-correlation environment that’s been reestablished over the past few months. And that’s not only true for what’s within the stock market, but also between different asset classes.

There was nowhere to hide (except the US dollar, really). It looked like it would be the first session since February 27, 2025, in which the SPDR S&P 500 ETF (SPY), the SPDR Gold ETF, and the iShares Bitcoin Trust were all down at least 1% while the iShares 20+ Year Treasury Bond ETF was also negative. After Trump’s last-minute promise to escort oil tankers through the strait, SPY pared losses to end just 0.89% down, barely rising above the line to join this inauspicious group.

The Takeaway

There have been only four previous sessions with this correlation since the iShares Bitcoin Trust’s inception in early 2024. One-month correlations — the extent to which the S&P 500’s constituents are expected to move in the same direction, derived from options prices — spiked, and hit their highest close since November 21.

Even if one ETF, SPY, managed to break out, it was a photo finish and it doesn’t change the underlying trend that, for the first time in a long time, the entire market was pretty much in the same boat. Bad news: the boat ain’t doing great.