Blending bonds and stocks is a hardy perennial for asset allocation, primarily because of the negative return correlation between the two asset classes that’s prevailed in years past. That is, when stock prices fall (rise), bond prices rise (fall). But this negative correlation isn’t written in stone and fluctuates through time. Recent history suggests it’s fluctuating its way into positive terrain. If so, the diversification benefits of a stock/bond portfolio will fade and possibly evaporate altogether, depending on how positive the return correlation becomes and how long it lasts.
After a summer of drifting lower and then holding in a range, the benchmark 10-year US Treasury yield is running higher this month. Does the jump mark a regime change after decades of trending lower? Or is this one more bout of noise? No one can be certain one way or the other, but we can and should manage our expectations by looking a variety of sources for perspective.
* Treasury Sec. Yellen: US runs out of money on Oct. 18 without higher debt ceiling
* Biden focuses on two Democratic senators to save $3.5 trillion plan
* JPMorgan’s Jamie Dimon says US default would be ‘potentially catastrophic’
* Sen. Warren opposes Fed’s Powell for second term
* Sharp rise in bond yields is challenging investor confidence in big tech firms
* Rising commodities prices lift risk of stagflation for global economy
* Analyst says data shows rise of indexing inflated a stock market bubble
* US home price gains continued accelerating in June, up 19.7% from year ago
* US Consumer Confidence Index continues falling in September: