A normalized equity-to-bond ratio indicator that assesses market sentiment by comparing performance between stocks and bonds over a one-year lookback period.
Explore complementary indicator rolesHow it works
The indicator calculates a normalized ratio between equity and bond prices over a 252-day period, addressing visual distortions from high nominal stock prices. By normalizing the comparison, it creates a more balanced view of relative performance between stocks and bonds.
The calculation involves dividing the equity price (like SPY) by the bond price (like AGG) and applying a normalization technique. A ratio above 1 indicates equities are outperforming bonds, while a ratio below 1 suggests bonds are performing better, providing a clear sentiment indicator.
Why it may be useful
This ratio helps traders understand broader market sentiment by revealing the relative strength between equity and bond markets. It provides insights into risk appetite, showing whether investors are moving towards riskier assets (stocks) or seeking safer havens (bonds).
By tracking this normalized ratio, traders can gain a more nuanced view of market dynamics beyond simple price movements. It serves as a valuable tool for assessing overall market sentiment and potential shifts in investor risk perception.
When to explore it
The equity-to-bond ratio is most effective during periods of market transition or uncertainty when investors are reassessing their risk exposure. It works particularly well for swing traders looking to understand broader market trends and potential shifts in asset allocation.
Traders should pay special attention to this indicator during economic events, central bank announcements, or significant geopolitical developments that might influence investor sentiment and asset preferences.
Keep exploring
What we’ve verified
Access, alerts and repainting behaviour have not been independently verified for this indicator. Check the creator’s current publication and settings.
General descriptions and classifications are recovered research. Verified details above identify the specific checks we have completed. Check the creator’s current publication for later changes.
