About Stock markets?

Question

What does it mean when it says how correlated do the markets and indexes appear to be?

Answer 1

If two things are highly correlated that means that they move very closely together, so if one moves up 10% the other will move along with it. If two markets are not correlated than one will move independently of the other, so if one goes up 10% the other may go up or down or stay the same.

Answer 2

It means that some people believe that there is a relationship between X and Y.

example.

The stock market (generally referring to the S&P 500, or the Dow Jones Industrial Average "The Dow") is related or "correlated" to the US economy. When the market does well so does the economy. This is usually true but not always true.

example 2.

When the .com bubble busted (result from high interest rates from 1998-2000, money exited the stock market and plowed into real estate. The stock market tanked from 2000-2002, however the real estate market grew as interest rates fell from 2001 to 2002.

As interest rates climbed from 2004-2006 the real estate bubble busted.

I tell people that the most import indicator to watch in trying to figure out what might happen in the future is to watch if interest rates are going up or down.

The point is that there was (and still is) a correlation between interest rates and the stock and bond markets, as well as with the economy.