Bloomberg global stocks and bonds are more closely in line with each other than they have been in nearly three decades, making it a headache for fund managers who want to spread their risk.
According to Bloomberg, the rolling one-year correlation between asset classes is near its highest since 1997. The narrowing difference in performance makes it hard to diversify equity exposure, according to Sanford C. Bernstein strategists Sarah McCarthy and Mark Diver.
After moving in the same direction last year, the asset classes were expected to return to an inverted relationship in 2023 and boost the appeal of the popular 60 40 portfolio. After a strong start to the year, returns in the investment strategy have tapered off as bonds price in a recession and stocks show resilience on bets of easing central-bank policy.
The Bloomberg Global Aggregate IndexBloomberg Global Aggregate Index, which tracks the performance of investment-grade debt, bounced back from its October trough, but remains about 18% below its peak. The MSCI World Index has risen 5.4% this year, after losing 20% in 2022, according to the MSCI World Index.
Markets are pricing the best of both worlds: a recession that brings inflation down rapidly and keeps rates low, yet one where corporate earnings do not fall sharply, according to Barclays Plc analysts including Ajay Rajadhyaksha. They wrote in a note that we are skeptical and think US stocks and bonds look expensive.
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