Stock Markets Seem to Be in Lock Step

High correlation across asset classes is the norm today. But in the long-run, diversification will still be the key to a winning portfolio.

The stock market today reminds me of the hit 1960s song "Nowhere to Run," by Martha and the Vandellas. When the market tanks nowadays, just about all stocks go down in unison. And that high degree of correlation isn't limited to U.S. stocks. Stock markets around the world now seem joined at the hip -- a bad day in Asia rolls over into losses in Europe and further declines in the U.S.

This phenomenon cuts across all asset classes. When stocks plunge, the prices of commodities -- particularly oil, and even gold -- are likely to head lower. Corporate bonds, except the very few with the highest ratings, also suffer. If it weren't for Treasury bonds and the Japanese yen, two asset classes that have reliably bucked a falling stock market lately, there truly would be "nowhere to run, nowhere to hide."

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Jeremy J. Siegel
Contributing Columnist, Kiplinger's Personal Finance
Siegel is a professor at the University of Pennsylvania's Wharton School and the author of "Stocks For The Long Run" and "The Future For Investors."