June 29 (Bloomberg) -- Investors are moving in lockstep like never before, driving up stocks, commodities and emerging
markets and risking a replay of last year, when they all plunged the most since World War II.
The Standard & Poor’s 500 Index, whose increase in the past three months was the steepest in seven decades, is rallying in tandem with benchmark measures for raw materials, developing- country equities and hedge funds. The so-called correlation coefficient that measures how closely markets rise and fall together has reached the highest levels ever, according to data compiled by Bloomberg.
The herd mentality threatens to leave investors with no refuge amid signs that the worst U.S. recession since 1958 isn’t abating. While bulls say it makes sense that markets climb together after the S&P 500, copper and oil lost more than 38 percent in 2008, RiverSource Investments LLC and Harris Private Bank are telling clients that diversification strategies to smooth out returns won’t work. They suggest shifting money to cash and bonds on concern gains will evaporate.
“If everything’s moving in the same direction, you can’t build a portfolio that has varying degrees of risk,” said David Joy, chief market strategist at RiverSource, which manages $125 billion in Minneapolis. “If we don’t start to see tangible evidence of economic improvement, there’s enough tentativeness among investors that they may be quick to retreat.”
