'Animal spirits' measure signals a market pullback could be near

A look under the surface of the S & P 500 may signal the benchmark is due for a pullback. DataTrek Research co-founder Nicholas Colas noted that S & P 500 sector correlations are nearly 2 standard deviations below their long-term average at 0.64. This, Colas said, indicates "excessive animal spirts" are driving the market. In this case, investors appear to be chasing the tech sector and AI plays, while neglecting the rest of the market. Colas said that instances of such low correlation do not bode well for investors. "Correlations have been at similar levels 3 times since the start of the current bull market in 2023, and each time the index pulled back by 5 – 18 percent," he said in a note to clients. The first instance of such low correlation came about on July 31, 2023. Between then and