Correlation between rates and equity

kenwind

In the above chart, I show the relationship between short term interest rate and equity market.The yellow line is 3 month Libor rate, while the white line is S&P 500 index. It appears that from 1965 to 2000, they are negatively correlated, while after 2000 they are positively correlated. Obviously, there is a correlation switching after 2000. The market after 2000 is more dominated by emotion than logic, the correlation was abandoned for greed to make easy money and fear to avoid further loss. Over the long term, short term interest rates correlate very closely but inversely with stock market behaviour. However, during periods of emotional exuberance, things can get interesting.