I began 2012 with this post about the tight correlation between the 10-year TIPs spread (the market’s inflation expectations) and the S&P 500 index. Despite the 11% broad market correction in the spring, TIP did not flinch, as you can see on the weekly chart below dating back to the March 2009 deflationary crash, bear market bottom.
Currently, TIP has not yet indicated that the 3-5% pullback on the major average means we are back inside the deflationary vortex. I believe this is one tool in your arsenal to be on the lookout for if we start to see meaningful weakness.
So far, though, so good for the bulls.