When stocks trade too similarly, it’s tougher for stock pickers to profit from unique opportunities.
The average three-month stock correlation on the S&P 500, a gauge of how uniformly stocks on the index trade, jumped from 9% in January to 52% last week. That was the largest and fastest increase outside of 1987, according to David Kostin, Goldman Sachs’ chief US equity strategist.
But there’s some good news for stock pickers: Kostin expects correlations to fall, as regulation on tech companies and other policy risks create more individualized opportunities.
