For most of the past two decades, a benevolent relationship between bonds and equity has prevailed as a central pillar of asset allocation. Falling equity markets consistently coincided with falling interest rates, providing an effective hedge between bond and equity allocations. Now, talk of weaker central-bank policy or a risk of deflation has many asset allocators focused on the future of the rates-equity correlation. 

We highlighted the U.S. price momentum factor as having elevated drawdown risk  at the end of June, due to significantly elevated crowding scores. And a curious thing happened at the beginning of September: For the month to date, U.S. price momentum experienced a drawdown of 4.7% — during relatively flat equity markets. Global price momentum also experienced a drawdown. The exhibit below illustrates the extent of the drawdown.