Lockstep Moves in Stocks and Bonds Smash 60-40 Portfolios




  • In Business
  • 2022-11-30 06:04:01Z
  • By Bloomberg

(Bloomberg) -- Stocks and bonds have been traveling almost in lockstep in recent months, heaping pressure on investors seeking to hedge risk by splitting their portfolios between the two asset classes.

Most Read from Bloomberg

  • Scientists Revive 48,500-Year-Old 'Zombie Virus' Buried in Ice

  • Banks Stuck With $42 Billion Debt Seize Chance to Offload It

  • These Are the Best and Worst Cities for Expats to Live and Work In

  • This Is Where Luxury Property Prices May Rise and Fall the Most in 2023

  • Apple to Lose 6 Million iPhone Pros From Tumult at China Plant

The 60-day correlation between the Bloomberg Global Aggregate Bond Index and the MSCI All Country World Index of stocks climbed to the highest level since 2012 this week, according to data compiled by Bloomberg starting in 1999. On a 120-day basis, the link is at a record high.

The ever-tighter relationship can largely be put down to rising interest rates. The avalanche of tightening from central banks around the world as they aim to counter inflation has wiped out 18% of the value of stocks and 17% from bonds since the start of 2022. A typical 60-40 portfolio is on course for its worst year since the global financial crisis.

Some relief may be on the horizon for investors hoping that hedging will become possible again.

Pacific Investment Management Co. founder Bill Gross and DoubleLine Capital's Jeff Gundlach are both beginning to position for a bond rally on the expectation that stuttering economic growth will convince central banks to starting cutting interest rates. Equities would still be likely to extend declines in such a scenario as a deteriorating global economy weighs on corporate earnings.

"When you go through a period of inflation stability, investors worry instead about economic growth. In that circumstance bonds and equities perform differently," said Shane Oliver, head of investment strategy and economics at AMP Services Ltd. "If we do go into a global recession next year, you would have a situation where bonds rally and equities sell off."

(Updates with comments from AMP's Shane Oliver)

Most Read from Bloomberg Businessweek

  • Car Price Divergence Hints at More Painful Inflation Ahead

  • Tesla's Lithium Lead at Risk as Rivals Make Supply Deals

  • How to Keep Your Investments Halal

  • More Men Are Staying Out of the Workforce to Care for Kids

  • Putting Chips in Hoodies and Clogs to Unlock Value for Buyers and Sellers

©2022 Bloomberg L.P.

COMMENTS

More Related News

France Unexpectedly Grows Amid Europe Recession Fear: GDP Update
France Unexpectedly Grows Amid Europe Recession Fear: GDP Update

(Bloomberg) -- The French economy grew unexpectedly in the final three months of 2022, offering encouragement with the euro area that's on the edge of...

Top Bond Fund Bets Markets Are Wrong on Rates, Again
Top Bond Fund Bets Markets Are Wrong on Rates, Again

(Bloomberg) -- After successful bets against the world's major bond markets paid off in 2022, a BlueBay Asset Management fund is positioned for another debt ...

France Hit by New Strikes as Pension Reform Opposition Grows
France Hit by New Strikes as Pension Reform Opposition Grows

(Bloomberg) -- French labor unions are leading a second day of mass strikes and protests on Tuesday against raising the retirement age in a test of the...

US, South Korea Plan to Bolster Military Drills That Anger Kim
US, South Korea Plan to Bolster Military Drills That Anger Kim
  • World
  • 2023-01-31 07:47:02Z

(Bloomberg) -- The US and South Korea are planning to step up the scale of their joint military exercises, a move that has in the past prompted threats and...

UBS Profit Beats Expectations as Rates Offset Trading Slowdown
UBS Profit Beats Expectations as Rates Offset Trading Slowdown

(Bloomberg) -- UBS Group AG reported fourth-quarter profit that beat expectations and said it plans to buy back more than $5 billion of shares this year, as ...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Business