When stocks zig, bonds are supposed to zag. That time-honored relationship has broken down over the past few years, but there are encouraging signs of its eventual return.
There’s no doubt that it’s been a challenging environment for fixed income. Losses in 2022 were particularly steep. It marked the first year in decades that bonds fell alongside stocks. Rapid rate increases by the U.S. Federal Reserve, against a backdrop of some of the highest inflation rates the U.S. economy has experienced in more than 40 years, caused massive upheaval. A look at the correlation between stocks and bonds during equity correction periods since 2010 shows just how unusual a period it was.