It's common for 'risk-on' assets to move together. The above chart shows the SPX with an overlay of the Emerging Market ETF (EEM). Also, below the chart is the correlation of the two. As we can see they are fairly correlated and they generally move together, just the magnitude of the movement is where they differ. In the last couple of days the emerging markets have sold off. As shown by the red line. Whereas, the SPX has been flat. Now, the pundits indicate that this is because of President-elects expected policies as well as the rise in interest rates. The later of the arguments is more compelling. Given that rates have climbed higher, the reach for yield has taken out the first 'risk-on' asset: emerging markets. The next domino to fall will be the SPX as the higher quality 'risk-on' assets are attacked. The EEM etf's dividend yield stands at 2.0%, same as the SPX. Given the lower quality, but higher growth, associated with emerging markets, its understandable that it would come down first. Now with the 10-yr yield at 2.25%, higher than both the SPX and EEM dividend yields, the reach for yield is unwinding.
