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Strategies & Market Trends : Z Best Place to Talk Stocks -- Ignore unavailable to you. Want to Upgrade?

To: Larry S. who wrote (48364)	5/31/2003 10:11:34 AM
From: DanZ	Read Replies (2) \| Respond to of 53068

pass_pass can't be related to BWAC. He posted at 2:30 am and BWAC doesn't post past 6 pm. lol Maybe I missed the discussion, but what is TLT? As far as whether there is any correlation between the bond market and stock market...I'd have to say no. It is widely believed that stock prices go up when bond prices go up (rates down), but that isn't always the case. All one has to do is look at the last three years to see this. Rates have been near forty year lows for several years while the stock market has gone through one of its worst bear markets in years. One would think that low interest rates will eventually spur growth in the economy, which would lead to higher stock prices, but look how long it took to have an effect this time. Sometimes falling rates have an immediate effect on the stock market, and sometimes they don't. Too many other factors affect stock prices to say that there is always a positive correlation between interest rates and stock prices. I found it interesting that the state of Illinois (I think) plans to sell bonds so they can buy stocks. Who would buy a bond so the issuer can buy stocks? Why not just invest your money in a stock mutual fund instead and get a higher rate over the long term (most likely, anyway)? I guess it would depend on the difference between the rate paid on the bonds and anticipated return in stocks, and the lower risk of the bond fund versus the stock fund. At any rate, if enough people sell bonds to buy stocks, rates will begin to rise (bonds down) and stock prices will continue to rise. This is an inverse correlation between stock prices and bond prices, which is contrary to convention wisdom.